Crompton Consumer (Q4FY20): Resilient show as Covid halts recovery. Maintain ADD
(TP Rs 221, CMP Rs 199, MCap Rs 125bn)
Crompton's performance in 4QFY20 saw a strong start as the co registered 14% yoy growth in its net revenues in Jan/Feb 2020. ECD clocked 18% in Jan/Feb while Lighting was at 4%. Fans, Appliances and domestic pumps registered volume growth of 21%, 48% and 19%. Covid led lockdown impacted the quarter adversely as co missed out on sales during the last 10-15 days of March (~25% of revenue mix for the quarter). However, compared to its peers, Crompton's performance was resilient. Decline of 14% yoy in ECD was in-line with Havells while the decline of 19% yoy in Lighting was better than the 31% yoy decline reported by Havells. We believe Crompton's business is more essential than discretionary as Fan/Lighting/Pumps are need based. Thereby, revenue loss due to lockdown will be limited than its peers. Owing to continued extension of lockdown and weakness in demand, we cut our EPS estimates 6/3% for FY21/FY22 (22/21% cut in our 4QFY20 Preview). We value Crompton at 30x on Mar-22E EPS, deriving a TP of Rs 221. Maintain ADD.
Strong growth pre-Covid: Net revenue saw contraction of 16% yoy (exp of 6% dip) to Rs 10.1bn (+7% in 4QFY19 and +4% in 3QFY20). ECD/Lighting revenues saw decline of 14/19% yoy. However, Jan/Feb saw healthy 14% yoy growth led by 18% growth in ECD. Fan continues to gain market share (1% up yoy). Lighting too saw return to growth and clocked 4% growth in Jan/Feb. Overall volume growth was 33% yoy in Jan/Feb. Co is focusing on product innovation to drive growth and market share.
Margins resilient: GM expanded by 67bps yoy to 31.6% (-64bps 4QFY19, +21bps 3QFY19). Employee/other expenses decreased by 8/12%. EBITDAM was down by 37bps yoy to 13.6% (exp 12.8%). EBITDA saw a decline of 18% yoy (exp dip of 15%). ECD EBIT margins expanded by 51bps yoy to 20%. Lighting margin remained under pressure, and declined by 450bps to 7%. Co plans to cut down cost by Rs 1bn in FY21 to support margins.
Call & other takeaways: (1) Co's plants are now operational and functioning at 25-30% of capacity, (2) Overall 40-50% of retail touchpoints have reopened. Demand in these stores is at 60-70% of normal, (3) Trade inventory is normal, (4) Co has 1 month inventory despite production loss, no supply side constraints, (5) Fans and Pumps have seen revival in demand in May, (6) Production improvement will continue, (7) Co's liquidity remains strong with Rs 5.85bn of cash. Additionally, co also has board approval for raising Rs 3bn via NCDs.
Maintain ADD: Consistent outperformance in ECD, price increase in B-C lighting and stock correction of 30% in the last 3 months keeps us interested in the story. We maintain ADD rating.
Shares of Crompton Greaves Consumer Electricals Ltd was last trading in BSE at Rs.202 as compared to the previous close of Rs. 198.3. The total number of shares traded during the day was 312107 in over 687 trades.
The stock hit an intraday high of Rs. 206.6 and intraday low of 199.85. The net turnover during the day was Rs. 63222152.