Buy Crompton Greaves Consumer Electricals Ltd for the Target Rs. 400 by JM Financial Services Ltd
1Q for Crompton was a miss on our and street estimates. Performance was weak across all the segments, with its ECD business, ~80% of revenue declining 8% YoY, owing to a weak summer which dragged down the performance of fans and coolers. Revenue from lighting and Butterfly largely remained flat. However, management commentary indicated that the decline that Crompton witnessed was lesser than what the broader industry experienced, hence market share gains seem likely. What also stood out was the doubling of revenue from solar pumps, wherein Crompton also won certain marquee orders. We cut our FY26-28E estimates by 4-5%, mainly realigning our margin expectations. Maintain BUY with a target price of INR 400, (vs. INR 420 earlier), set at 35x Mar’27E EPS (unchanged).
* 1Q misses estimates owing to weak performance in ECD: 1Q revenue at INR 20bn declined 7% YoY, missing our and consensus estimate by 12% and 9% respectively. Revenue performance was weak across the board, with revenue from ECD declining 8% YoY (80% of total revenue), while lighting (12% of total revenue) and Butterfly remained flat YoY. Consolidated gross margin remained largely flat YoY, but negative operating leverage drove an 110bps EBITDA margin contraction. Segmentally, ECD was impacted the highest, its margins contracting 165bps YoY, while lighting and Butterfly saw a YoY margin expansion of 380bps and 190bps respectively. Absolute EBITDA declined 17% YoY to INR 2.4bn. 1Q PAT at INR 1.2bn, declined 19% YoY, missing estimate.
* Outperformed industry, likely to have gained market share: Crompton’s ECD business declined 8% YoY in 1Q vs. the industry decline of 11%. Hence, it is likely that Crompton has gained market share across categories. A large part of the 8% decline was owing to seasonal categories which include fans (specifically TPW fans), and air coolers. However, in seasonal products too, the decline was lower than broader industry trends. New BLDC fan products have been received well, and Crompton remains the #2 player in this category. Lastly, while channel inventory remains above normalised levels it is beginning to clear now, and management indicated that feedback from the market is positive.
* Solar rising through the ranks: Solar pump category is leading the growth for Crompton, through the quarter as solar pump revenue has double YoY. Additionally during the quarter Crompton secured the largest-ever solar pumps order of INR 1bn from Maharashtra Energy Development Agency (MEDA), and has also expanded its presence of solar pump tenders across states. While Crompton is responsible for the entire product, the execution and installation is done by of the partner the model that they are following for past 2 years, and management reiterated that it will continue to remain the same as EBIT margins and working capital in solar pump orders is are similar to existing levels with high return on investment.
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SEBI Registration Number is INM000010361
