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Increased investments dents margin; maintain
NEUTRAL
Result Synopsis
Crompton has reported inline revenue with ECD growing at 6.1%, while lighting and Butterfly
products registering decline of 13% and 14% respectively. ECD growth was on back of strong
growth in Appliances which grew by 19% yoy, while its core category of Fans grew by 5%.
Lighting segment was impacted by low consumer demand. Gross margins at 30.8% have been
lower as increased cost on shifting to BEE ratings in Fans have not been passed on, while
operating margins were lower as company continues to invest in its long-term strategic
initiatives like R&D innovation center, increased A&P spends and investing in alternate
channels. On Butterfly front company has managed to improve its gross margins, while higher
brand investments in Butterfly have impacted its operating margins. CROMPTON has devised
strategy 2.0 where its aiming at accelerated growth at healthy margins to deliver shareholders
return. Its strategy includes 1) Protecting and growing the core business; 2) Growing strongly in
kitchen space; 3) transform the lighting business and 4) Foray into new segments. We remain
Neutral on the stock as implementation of Strategy 2.0 will require higher brand investments
which will result in lower margins in near to medium term.
We now feel recent initiatives taken by CROMPTON will require sustained efforts and
investments. Considering increased investments, we have trimmed our margin estimates for
FY24 and FY25. We now bake in FY22-24E Revenue/EBITDA/PAT CAGR of 12%/15%/21%
and arrive at our PT of Rs 327 valuing the company at 30x FY25EPS and maintain Neutral
rating.
Result Highlights
? Quarter Summary – CROMPTON saw flattish revenue with ECD growing by 6%, while
Lighting and Butterfly products registered decline of 12% and 13% respectively.
Subdued demand environment and erratic weather conditions have impacted demand.
? Margins – Gross margins was lower as higher BEE cost in fans has not been passed on,
there was price correction in pumps to win back share. Higher A&P spends resulted in
lower EBITDA margin
? Fans – Fans exhibited growth of 5% yoy aided by strong growth momentum in premium
fans which grew by 22%. Contribution of premium fans has now reached 28%. BLDC
fans has seen growth of more than 80% on low base. Crompton has 70+SKU’s of BLDC
fans highest in the industry.
? Lighting – Lighting revenue declined by ~13% on lower consumer demand. Company
has started to take actions on restructuring of its portfolio with focus on strengthening
its dealer network and driving premiumization.

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