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Result Synopsis

Crompton has reported marginally lower than estimated revenue growth on account of subdued performance of Butterfly Appliances. ECD revenue grew 12.5% (in line with estimates). Fans have witnessed muted growth of 5%, while Pumps (+20%) and Appliances (+26%) have registered strong growth. Appliance growth has been driven by water heater, room heater and mixer grinders. Air-cooler delivered strong growth even in the lean season. Company continues to gain share in its key categories of fans, Pumps and Appliances. Margins in ECD stood at 14.8% expansion of 64bps yoy despite higher A&P spends. A&P spends have seen increase of 69% to Rs540mn in Q2. Lighting revenue has seen mid-single digit growth after many quarters of decline. CROMPTON is witnessing initial green shoots in lighting revenue and margin which is a positive sign. As far as Butterfly appliances is concerned it is on track to improve its performance on sustainable basis. CROMPTON focus on delivering growth with profitability is playing out. Crompton’s 2.0 strategy has started to pay dividends with company gaining market share in products like water heater and mixer grinders, in mixer grinders CROMPTON + Butterfly have become market leaders. The company has started to deliver on expectations on consistent basis and should command higher multiple in line with peers. We maintain our price target of Rs510 and upgrade the stock to BUY valuing the stock at 45x FY27 EPS. Moreover, company is generating strong cashflows and has now become Net cash company.

We believe initiatives taken by CROMPTON of sustained efforts and investments is bearing fruits resulting in market share gains with margins returning to normalcy despite higher A&P spends. We now bake in FY24-27E Revenue/EBITDA/PAT CAGR of 12%/18%/24% and arrive at our PT of Rs 510 valuing the company at 45x FY26EPS and upgrade the stock to BUY. We believe risk reward has turned favorable given the recent correction in the stock price.

Result Highlights

* Quarter Summary – CROMPTON consolidated revenue grew 6.4% yoy. ECD business delivered growth of 12.5% driven by broad based performance across the product categories. Lighting (+6% yoy) and Butterfly (-18.1% yoy) dragged overall performance.

* Margins – Gross margins has seen improvement of 140bps to 32.7%, while EBITDA margin at 10.7% has improved 94bps despite higher A&P spends which has been commendable. Pricing action has led to gross margin improvement.

* ECD – Strong growth in ECD was driven by broad based growth across product categories. Pumps and Appliances have delivered strong growth of 20% and 26% respectively. The company has strong pipeline of order in solar pumps as well. Aircoolers have done extremely well despite being lean season, while in mixer grinders it has become market leader.

* Lighting – The company is seeing green shoots in lightings both in terms of revenue and margin. Lighting segment has seen mid-single digit growth after many quarters of decline.

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