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Good quarter; continuing the momentum

CROMPTON’s consolidated sales increased by 10% yoy to ?19.6 bn, broadly in line with expectations. Within ECD segment, sales grew by 14% y-o-y to ?15.2 bn, propelled by strong growth in fans (13%), pumps (9%), and appliances (27%). However, lighting sales remained flat yoy at ?2.8 bn, as the positive impact of healthy volume growth was countered by ongoing price erosion in B2C LED products. The growth in appliances was primarily driven by a remarkable 35% y-o-y expansion in small domestic appliances, followed by a 33% increase in air-coolers. The company continues to strengthen its position in key categories such as premium fans, water heaters, and pumps. Despite increased investments and expenses related to EPR, the ECD segment maintained a healthy margin of 16.7%. Gross margin improved by 40 bps y-o-y to 31.9%, attributed to cost-saving initiatives (Project Unnati) and a more favorable product mix. However, other expenses rose to ?2.7 bn, driven by higher advertising and promotion spends, as well as a provision of ?150 mn for EPR. Consequently EBITDA declined by 4% y-o-y to ?2 bn, resulting in a 140 bps decrease in EBITDA margin to 10.4%, although still surpassing consensus estimates. PAT grew by 6% yoy to ?1.4 bn.The ECD segment continues to perform well, with robust performance in B2B lighting. Efforts are focused on enhancing the performance of the Butterfly brand, with expectations of recovery starting from the second quarter of FY25.

CROMPTON will continue its commitment to invest in branding, R&D, and enhancing capabilities, aligning these investments with the pace of sales growth. The implementation of Crompton’s 2.0 strategies is beginning to yield positive outcomes, with the company expanding its market share in key sectors and witnessing an uptick in profitability. Going forward, Crompton will prioritize growth while concurrently enhancing profitability. The company has proactively addressed rising costs by adjusting pricing strategies, aiming to safeguard profitability. These recent initiatives have already begun to demonstrate their effectiveness. Given the focus on growth coupled with profitability enhancement, we anticipate that these strategies will lead to consistent market share gains and margin improvements over the medium term. Taking into account these recent developments, we maintain a BUY rating with a revised target price of ?435 (based on 35x FY26 EPS).

CROMPTON’s consolidated sales grew 10% YoY to ?19.6bn. ECD sales grew 14% YoY to ?15.2bn driven by fans (+13%), pumps (+9%) and appliances (+27%). Lighting sales were flat YoY at ?2.8bn as healthy volume growth was offset by continued B2C LED price erosion. Gross margin rose 40bps YoY to 31.9% due to cost savings (Project Unnati) and better product mix. Other expenses were higher at ?2.7bn (higher A&P spends and ?150mn EPR provision). Hence, EBITDA fell 4% YoY to ?2bn, leading to 140bps YoY decline in EBITDA margin to 10.4%. PAT grew 6% YoY to ?1.4bn, above our/consensus estimate of ?1.1bn/?1.2bn.

Segment Results ECD: Within ECD, momentum was led by Appliances (up 27% YoY), Fans (up 13% YoY) and Pumps (up 9% YoY). Fans saw strong double digit growth and premium fans contributed 24.3% vs 21.3% YoY (up 300bps YoY). GTM strategy for Fans led to a contribution of 18% in alternate channels vs 15% in 4QFY23, driven mainly by E-comm. The company took three price hikes across categories in Fans. Appliances growth was largely driven by Air Coolers (+33% YoY), and Small Domestic Appliances (SDA) – up 35% YoY. Pumps grew by 9% YoY, led by robust traction in both Agri Pumps + new orders in Solar Pumps. In Pumps, focus is to address portfolio gaps + channel expansion. There was an impact of ?142mn for EPR liability, and excluding that, the EBIT margin stood at 17.6% (up 120bps YoY). Including the EPR Liability, ECD margins grew by 29bps YoY to 16.7%. Lighting: Lighting sales were flat YoY at ?2.8bn as healthy volume growth in B2C lighting (ceiling lights, battens and accessories) was offset by LED price erosion. EBIT margin fell 200bps YoY to 8.9% (including EPR impact of ?62mn in Q4FY24). Butterfly: Butterfly sales fell 12% YoY to ?1.6bn (downsizing corporate sales channel) with ?261mn EBIT loss (?240mn ad-spends and ?12mn EPR impact). CROMPTON expects scale up from Q2FY25 while it aims to attain double digit margin in the long term

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. Taking into account these recent developments, we maintain a BUY rating with a revised target price of ?435 (based on 35x FY26 EPS).

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