Buy Crompton Greaves Consumer Electricls; target of Rs 435: LKP Research

LKP Research's research report on Crompton Greaves Consumer Electricls

CROMPTON’s consolidated sales increased by 10% yoy to ₹19.6 bn, broadly in line with expectations. Within ECD segment, sales grew by 14% y-o-y to ₹15.2 bn, propelled by strong growth in fans (13%), pumps (9%), and appliances (27%). However, lighting sales remained flat yoy at ₹2.8 bn, as the positive impact of healthy volume growth was countered by ongoing price erosion in B2C LED products. The growth in appliances was primarily driven by a remarkable 35% y-o-y expansion in small domestic appliances, followed by a 33% increase in air-coolers. The company continues to strengthen its position in key categories such as premium fans, water heaters, and pumps. Despite increased investments and expenses related to EPR, the ECD segment maintained a healthy margin of 16.7%. Gross margin improved by 40 bps y-o-y to 31.9%, attributed to cost-saving initiatives (Project Unnati) and a more favorable product mix. However, other expenses rose to ₹2.7 bn, driven by higher advertising and promotion spends, as well as a provision of ₹150 mn for EPR. Consequently EBITDA declined by 4% y-o-y to ₹2 bn, resulting in a 140 bps decrease in EBITDA margin to 10.4%, although still surpassing consensus estimates. PAT grew by 6% yoy to ₹1.4 bn.The ECD segment continues to perform well, with robust performance in B2B lighting. Efforts are focused on enhancing the performance of the Butterfly brand, with expectations of recovery starting from the second quarter of FY25.

Outlook

Given the focus on growth coupled with profitability enhancement, we anticipate that these strategies will lead to consistent market share gains and margin improvements over the medium term. Taking into account these recent developments, we maintain a BUY rating with a revised target price of ₹435 (based on 35x FY26 EPS).

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Crompton Greaves Consumer Electricls - 18052024 - lkp