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Maintain ADD on Crompton Consumer - On the path to recovery - HDFC Securities

Posted On: 2020-07-28 10:30:12

Mr. Naveen Trivedi, Institutional Research Analyst, HDFC Securities.

Crompton's 1QFY21 revenue was slightly lower than estimates, declining by 47% YoY vs our estimated figure of 41% YoY. At the same time, there was a beat in EBITDA by 10% despite our estimate being higher than consensus'. Efficient cost control by the company has supported its margin in the current crisis. ECD revenue/EBIT decline was 44% YoY (better than Havells and Orient Electic). ECD saw a sequential recovery as May was down by 30% while June was down only 10% YoY. Some categories like agri pumps, geysers, appliances and mixer-grinders recorded strong growth in June. Lighting saw revenue/EBIT dip by 57/61% YoY. The B-C pick-up was healthy (9% YoY growth in June) while B-B is gradually improving. Stability in pricing in B-C lighting is supporting the segment's margin, which deteriorated in FY20. We maintain our EPS estimate for FY21/FY22/FY23 as we expect a gradual recovery from 2HFY21 onwards. We value Crompton at 35x P/E on Jun-22E EPS and derive a target price of Rs 275. Maintain ADD.

Marginal miss in revenue: Revenue declined by 47% YoY (+12% in 1QFY20 and -16% in 4QFY20). Lighting/ECD saw revenue dip by 57/44% YoY as the lockdown disrupted sales significantly in April. Crompton saw recovery from May and ECD/B-C lighting sales reached 90% of last year's level for the company in June. Mixer-grinder posted strong growth of 105% YoY in June while agri pumps/geysers/appliances saw growth of 25/42/6% YoY.

Beat in EBITDA: Overall gross margin was marginally lower by 13bps YoY (+27bps in 1QFY20 and +67bps in 4QFY20). Employee/other expenses declined by 12/63% YoY. EBITDA margin saw a dip of 40bps YoY (+37bps in 1QFY20 and -37bps in 4QFY20) to 14%. EBITDA was lower by 49% YoY. EBIT margin for lighting dipped by 47bps YoY on account of muted pricing in B-C lighting and weak demand in B-B. ECD margin saw a marginal improvement of 24bps YoY, aided by cost management initiatives by the company. Growth in other income and marginally lower tax rate helped the company restrict decline in PAT to 40% YoY (our estimate was -49% YoY).

Concall takeaways: (1) Consumer offtake showed similar trends to primary sales; (2) manufacturing operations are now at 90% of normal levels; (3) the company did not witness any significant downtrading, and some categories saw uptrading; (4) e-commerce saw 400% YoY growth in May and June; (5) working capital for the company improved and cash stood at Rs 9.7bn.

Shares of Crompton Greaves Consumer Electricals Ltd was last trading in BSE at Rs.251.7 as compared to the previous close of Rs. 246.4. The total number of shares traded during the day was 16839 in over 706 trades.

The stock hit an intraday high of Rs. 253.45 and intraday low of 243.35. The net turnover during the day was Rs. 4201481.

Source: Equity Bulls

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