Maintain BUY on Crompton Consumer - Surprises continue; market share story intact - HDFC Securities

Mr. Naveen Trivedi, Institutional Research Analyst, HDFC Securities

Crompton continued its strong run in 3QFY21 as revenue/EBITDA grew by 26/46% YoY (HSIE 19/32%). ECD saw 32% YoY broad-based growth, as Fans/Pumps/Geysers posted 36/19/49% YoY growth. Crompton saw market share gains across its portfolio, share gain in fans by 1% YoY. Lighting sustained recovery, B-C clocked 13% volume growth while B-B remained a laggard. Consistent focus on distribution reach (mainly in rural), cost optimisation, and product innovation is driving overall performance. EBITDA margin was up >200bps YoY despite RM inflation, as cost control, product mix, and oplev supported margin. We expect earnings momentum to sustain in the coming quarters too. We increase EPS by 6/4% for FY22/23. We value Crompton at 40x P/E on Mar-23E EPS to derive a TP of Rs 460. Maintain BUY.

ECD-led beat in revenue: Revenue grew by 26% YoY (+4% in 3QFY20 and +13% in 2QFY21), beating our expectation of 19% YoY growth. ECD revenue was up by 32% YoY (+11% in 3QFY20 and +32% in 2QFY21). Lighting revenue was up by 10% YoY (-11% in 3QFY20 and -2% in 2QFY21). ECD saw broad-based growth while Lighting B-C was strong (13% growth) with weak B-B. E-com and MT grew by >50% YoY while rural grew by 88% YoY.

Robust margin expansion: GM expanded by 13bps YoY (+21bps in 3QFY20 and+106bps in 2QFY21) vs expectation of 25bps YoY expansion. Employee/Other expenses grew by 20/9% YoY as operations returned to normal for the company. EBITDA margin expanded by 206bps YoY to 14.8% (+54bps in 3QFY20 and 373bps in 2QFY21). EBITDA grew by 46% YoY (HSIE 32%).

Lighting margin recovery sustained: EBIT margins were healthy for Lighting with an expansion of 539bps YoY (-198bps in 3QFY20 and +651bps in 2QFY21) while ECD margin remained flat YoY (+119bps in 3QFY20 and +182bps in 2QFY21). Price stability in Lighting supported margins. However, ECD margins were impacted by the sharp increase in commodity inflation. PBT clocked 46% YoY growth while PAT declined by 6% YoY due to tax refund in the base quarter.

Concall takeaways: (1) Capacity utilisation is 30-40% higher YoY; (2) secondary data indicated no inventory buildup in the channel; (3) Crompton took a 5-8% price hike in ECD due to commodity inflation; (4) the company intends to restore ECD margin to industry-leading level; (5) several players including Crompton announced a 5% price hike in B-C Lighting in Jan'2021; (6) premium fans saw 51% YoY growth.

Shares of Crompton Greaves Consumer Electricals Ltd was last trading in BSE at Rs.422.25 as compared to the previous close of Rs. 428.8. The total number of shares traded during the day was 90373 in over 3229 trades.

The stock hit an intraday high of Rs. 441.75 and intraday low of 408.65. The net turnover during the day was Rs. 38444380.

Source : Equity Bulls

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