Buy Crompton Greaves Consumer Electricals Ltd For Target Rs. 510 By LKP securities Ltd
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Crompton’s consolidated sales rose by 13.9% YoY to ?21.4 bn, aligning with expectations. The ECD segment saw a 21% YoY increase, reaching ?17.3 bn, driven by robust growth in fans (16%) and coolers (68% volume growth), supported by harsh summer conditions and price hikes. Appliances grew by 30%, led by coolers and mixer grinders, while pumps also saw a 30% YoY increase. The company continues to capture market share in fans, pumps, and appliances. However, lighting sales remained subdued YoY at ?2.3 bn, as strong growth in B2B was offset by ongoing price erosion in B2C. Gross margin improved by 110 basis points YoY to 31.9% due to cost savings, pricing strategies, and premiumization. EBITDA increased by 25% YoY to ?2.3 bn, resulting in a 100 bps YoY rise in EBITDA margin to 10.9%, which was better than expected. PAT grew 28% YoY to ?1.5 bn. The company is focusing on boosting the performance of the Butterfly brand, with a recovery anticipated starting in H2FY25. Crompton will continue to invest in branding, R&D, and enhancing capabilities, in line with sales growth. The implementation of Crompton’s 2.0 strategies is showing positive results and is expected to drive consistent market share gains and margin improvements in the medium term. Given these developments, we maintain a BUY rating with a revised target price of ?510.
Segment Results
ECD: The ECD segment saw a 21% YoY increase in sales to ?17.3 bn, driven by broad-based growth. The EBIT margin improved by 230 bps YoY to 15%, supported by premiumization, an enhanced product mix, and strategic pricing actions. Fans grew by 16% YoY (15% in volume terms), with the increase driven by TPW fans and a fourth consecutive quarterly price hike of 1.5% in Q1, which boosted gross margins. Premiumization now accounts for 25% of fan sales, leading to an increased market share of 28-29%. Pumps grew by 30% YoY, benefiting from strong performance in residential pumps where market share rose by 210 bps to 31.5%, with a focus on expanding agri and solar pumps. Air coolers experienced a 68% YoY volume increase, selling 200,000 units. Large domestic appliances grew by 25% YoY, while mixer grinders grew by 20% YoY.
Lighting: Lighting sales remained flat YoY at ?2.3 bn. While there was double-digit volume growth in B2C battens and ceiling lights, this was offset by LED price erosion and the discontinuation of conventional products. B2B growth, driven by streetlights and the industrial segment, remained strong. However, EBIT margin declined by 300 bps YoY to 8.9% due to increased A&P expenditures, which amounted to ?60 mn or 2.4% of sales.
Butterfly: Butterfly sales decreased by 19% YoY to ?1.8 bn. The online channel faced challenges due to process streamlining and pricing adjustments, although retail growth persisted. The new management is implementing various strategies, including pricing actions, product laddering, and channel optimization, but turning around Butterfly remains a work in progress. The EBIT margin fell by 500 bps YoY to 2.3%, partly due to higher A&P expenses, which accounted for 4% of sales.
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 ?510.
Please refer disclaimer at www.lkpsec.com/#foo
SEBI Registration number is INM000002483
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