PL Stock Report: Crompton Greaves Consumer Electricals (CROMPTON IN) - Q2FY24 Result Update – Industry leading growth in ECD in tough time - BUY

Crompton Greaves Consumer Electricals (CROMPTON IN) - Praveen Sahay - Research Analyst, Prabhudas Lilladher Pvt Ltd.

Rating: BUY | CMP: Rs283 | TP: Rs377

Q2FY24 Result Update – Industry leading growth in ECD in tough time

Quick Pointers:

§ ECD segment up 16.5% YoY stands driven by fans & appliances.

§ EBITDA margin contracted 160bps with lower GM & higher A&P expenses.

We downward revise our FY24/25/FY26E earnings by 7.9%/6.4%/5.9% to factor in margin contraction in ECD & Butterfly businesses with higher overhead expenses. Crompton Greaves Consumer Electricals (Crompton) has delivered industry leading growth in ECD at 16.5% YoY driven by strong momentum in Fans (+18% YoY) and Appliances (+17% YoY). Crompton’s growth strategy at current margins remains intact as it 1) restructured organization with five business units, 2) appointed second level leadership team, 3) setup innovation center to continuously increase SKUs across BUs, 4) diversified GTM channels by leveraging new channels & building future ready channels and 5) increased focus on A&P. Although the strategy may impact FY24 financials, we expect better growth FY25 onwards. We estimate Revenue/EBITDA/ PAT CAGR of 13.4%/13.5%/17.8% over FY23-26E. Maintain ‘Buy’ with TP of Rs 377 (earlier Rs 401), valuing at 35x Sep’25 earnings.

Revenue 4.9% YoY, PAT down 22.8% YoY: Revenue up 4.9% YoY to Rs17.8bn. Gross margin contracted 80bps YoY to 31.1% due to competitive pricing in fans & pumps and price correction in lightings. EBITDA declined by 9.6%YoY to Rs1.75bn (in-line our est.) with margin contraction of 160bps YoY to 9.8%, due to increase in other expenses (up 6.3%, 13.1%sales vs 12.9%sales in Q2FY23) and emp. exp. (8.4%sales vs 7.8%sales). This was due to 1) investment in A&P (up 31% YoY), 2) hired team for building capability, and 3) loss of Rs 65mn in built-in Kitchen Appliances. PAT declined by 22.8% YoY to Rs1.0bn below our est. (PLe: Rs1.1bn).

ECD sales up 16.5%, Lighting sales down 11.5% YoY: ECD segment grew 16.5% YoY to Rs 12.4bn and Fans grew +18% YoY driven by strong performance in Ceiling Fans & TPW categories and pump +10% YoY led by robust traction in both Agriculture and Residential segments; New product launches & pricing actions aided growth and appliances +17% YoY driven by growth in Mixer Grinders, Water Heaters delivered highest ever quarterly volume along with significant growth in E-commerce. Lighting segment declined 11.5% YoY due to pricing erosion in B2C as competition remains taut, while there are signs of recovery in B2B with flattish demand. EBIT margin in ECD contracted 290bps on account of increase in A&P expenses and losses in Built-in kitchen appliances. EBIT margin in lighting expanded by 250bps YoY on account of cost optimization initiatives & product mix.

Concall Takeaways: 1) In Q2FY24, company navigated a challenging market influenced by unseasonal weather & regulatory changes, impacting demand dynamics, channel strategies, inventory and pricing. 2) A&P spends witnessed a substantial 31% YoY growth. 3) Company is strategically venturing into premium products market, investing in market excellence, brand development and new product innovation. 4) Growing in both traditional and alternate channels, Crompton doubled its ecommerce business and increased the Alternate channel's saliency to 17% compared to 13% last year. 5) Successful product launches have positioned the company as industry leader in premium BLDC fans, boasting the largest range.

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