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Maintain BUY on Crompton Consumer - ECD continues to be the torchbearer; miss in lighting - HDFC Securities

Posted On: 2021-07-28 07:12:19 (Time Zone: UTC)

Mr. Naveen Trivedi, Institutional Research Analyst, HDFC Securities and Mr. Saras Singh, Institutional Research Analyst, HDFC Securities

Crompton posted an in-line ECD EBIT (INR 1.6bn), while the lighting business saw a miss due to an impact on B-B/B-G. Revenue grew by 46% YoY (HSIE 56%) while compared to Q1FY20, it was down 22% (-47% YoY in Q1FY21). ECD registered 48% YoY revenue growth (52% HSIE), seeing an 18% decline in revenue on the Q1FY20 base (-44% YoY in Q1FY21). Our channel checks had indicated ~15% revenue decline for most leading players over Q1FY20; Crompton's ECD performance is in that range only (pressure pumps drag the performance). The ECD margin contracted by 288bps YoY to 17.6% (HSIE 17.5%). The lighting segment grew 34% YoY (HSIE 75%) with a 39% decline over Q1FY20, below Havells' decline of 16%. B-C lighting LED saw 48% YoY revenue growth; however, B-B and B-G businesses continued to face slow order pick-up. Lighting saw 462bps YoY EBIT margin expansion to 10.7% (HSIE 12.5%), but it contracted by 539bps QoQ. We maintain our estimates and value Crompton at 40x P/E on Jun-23E EPS to derive a TP of INR 475. We continue to believe that the rerating potential in Crompton is driven by share gains in fans, healthy underlying demand and strong traction in appliance, and recovery in the lighting margin. Maintain BUY.

Broad-based ECD growth, B-B lighting a drag: Revenue grew by 46% YoY (- 47% in Q1FY21 and +48% in Q4FY21). ECD saw 48% growth (-44% in Q1FY21, 61% in Q4FY21, HSIE 52%) with broad-based growth across all product lines. Fans grew 63% YoY, while the appliance business grew 99% YoY, driven by air coolers, mixer grinders and geysers. The pumps business grew by 17%, driven by domestic pumps. Crompton's rural business saw 195% YoY growth while the e-commerce and modern trade channel grew 149% YoY. Lighting revenue was up by 34% YoY (-55% in Q1FY21, +15% in Q4FY21, HSIE +75%). B-C LED lighting saw 48% value growth. Lighting B-B and B-G were muted on slow order pick-up by the government.

Subdued lighting margin: GM contracted by 19bps YoY to 32.3% (+70bps in 4QFY20 and +13bps in 3QFY21) while it expanded 150bps QoQ. Lighting EBIT margin saw an expansion of 462bps YoY (+91bps in Q1FY21 and +841bps in Q4FY21) to 10.7%. The ECD EBIT was in line at INR 1.6bn. EBITDA margin, at 12%, contracted 187bps YoY (-47bps in Q1FY21, 122bps in Q4FY21).

Con call takeaways: (1) The north region recovered quick, followed by the west region, while the recovery in south was slow (the south mix fell to 30% vs 35%). (2) The company has taken two rounds of 5-10% price hikes in Q1FY22. (3) It is the market leader in fans/residential pumps with 27/26% market share and third largest in geysers with 13% share. (4) Within B-B, private industries are improving but B-G is still slow. (5) The company is planning Capex of INR 300- 500mn for FY22.

Shares of Crompton Greaves Consumer Electricals Ltd was last trading in BSE at Rs. 471.6 as compared to the previous close of Rs. 467.75. The total number of shares traded during the day was 23994 in over 1199 trades.

The stock hit an intraday high of Rs. 474.9 and intraday low of 467.75. The net turnover during the day was Rs. 11311388.

Source: Equity Bulls

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