IGI Logo

Crompton results were a mixed bag wherein steady performance seen across ECD and lighting product segments marred by the soft performance of Butterfly (revenue down 6%, EBIT margin at -0.8%). ECD segment continued to perform well registering 18% YoY growth in revenues while ECD margins stood at 13.6%. The Lighting segment rose a little under 1% YoY, after several quarters of YoY declines. Butterfly (BGAL) remains a work in progress as its channel correction initiatives will continue for some time. Management firmly backs Crompton 2.0 strategy and its focus on growing its portfolio across fans/pumps along with scaling its kitchen portfolio and transforming lighting is expected to bear fruits with some initial green shoots visible. In the medium to long term product and distribution synergies expected to lead to better growth. Further with focus on product innovation (differentiated and premium products), GTM and cost optimization will reap benefits. We believe these initiatives will likely bode well with steady market share gains and margin improvement over the medium term. We have pruned down our estimates largely on account of BGAL performance and also introduce FY26 estimates. Hence, we maintain BUY with a revised TP of ?335.

Q3FY24 Result Summary

Consolidated revenue grew by 12% YoY to ?16. Ex-BGAL, revenue grew by 15% YoY. Gross margin was flat YoY at 32.5%. EBITDA fell by 2% YoY to ?1.5 bn while the margin contracted by 120bps YoY to 8.8% (HSIE: 10%). Employee/other expenses grew by 9%/23% YoY. A&P spending was up 65%. As a % of sales, employee/A&P expenses saw a -20/+140bps change YoY. Standalone EBITDA grew by 13%, with the margin falling 20bps to 10.1%. PBT fell by 2% YoY to INR1.1 bn while APAT grew by 1% YoY to ? 860 mn. Standalone PBT/PAT grew by 17%/13%.

Segment results

ECD revenue grew by 19% YoY to ?12.1 bn driven by fans, pumps and appliances while margin contracted 230bps YoY to 13.6%. Fans/pumps/appliances grew by 11%/28%/23%. Lighting revenue grew by 1% YoY to ?2.5 bn driven by 4% YoY growth in the B2B segment, while the B2C segment faced price erosion in battens and lamps while the margin expanded 90bps YoY to 11.2%. BGAL revenue fell 6% YoY to ?2.3 bn. BGAL registered a 4% YoY drop in revenue, mainly due to a 75% YoY plunge (?340 mn) in corporate sales. On the other hand, the core categories such as mixer-grinders, gas stoves and pressure cookers saw a 12% YoY increase. Within this, stainless steel gas stoves and pressure cookers had a 47% YoY and 200% YoY growth, respectively.

The company gained market share in all core categories in 3QFY24. The new products contributed 14% of the total revenue. The segment reported a negative EBIT of ?19 mn as a result of higher spending on brand building and disproportionate A&P expenses in retail and e-commerce, investments in people capabilities and a 16% hike in salaries from April 2023.

Outlook and Valuation

With management firm backing for Crompton 2.0 and its focus on growing its portfolio across fans/pumps along with scaling its kitchen portfolio and transforming lighting is expected to bear fruits with some initial green shoots visible. In the medium to long term product and distribution synergies expected to lead to better growth. Further with focus on product innovation (differentiated and premium products), GTM and cost optimization will reap benefits. We believe these initiatives accompanied by some recovery in margins on the back of Butterfly synergies, consumer demand recovery, pricing actions and operating leverage with steady market share gains will likely bode well over the medium term. We have pruned down our estimates largely on account of BGAL performance and also introduce FY26 estimates. Hence, we maintain BUY with a revised TP of ?335.

Please refer disclaimer at www.lkpsec.com/#foo

SEBI Registration number is INM000002483

Above views are of the author and not of the website kindly read disclaimer