Maintain BUY on Crompton Consumer - ECD remains share gain story; beat in lighting margin - HDFC Securities

Mr. Naveen Trivedi, Institutional Research Analyst, HDFC Securities

Crompton posted a robust 4QFY21 with revenue/EBITDA growth of 48/61% YoY (HSIE 40/46%). ECD continued its strong recovery trend from 2QFY21 onwards as the company saw growth across categories and regions; it clocked 61% YoY growth in 4Q. Crompton posted 59% growth in fans in 4Q (Jan and Feb 29% growth) with high growth in premium fans. Fan saw 1% share gain (highest gains among leading players) led by rising distribution reach (which rises by 3% to 55%) and consumers' preference towards trusted brands. Appliances gradually became the new legs of growth, posting 74% growth in 4Q (Jan and Feb 40% growth), driven by air coolers, mixer grinders and geysers. Lighting grew by 15%, which is a strong recovery after dismal show in 1HFY21. Lighting saw massive 840bps YoY expansion in EBIT margin to 16.1% (all-time high), led by price hikes and improved product mix. Consistent focus on distribution (mainly in rural), cost optimization, and product innovation are driving overall performance. We cut our FY22 EPS by 5% while maintain estimates for FY23. We value Crompton at 40x P/E on Mar- 23E EPS to derive a TP of INR 460. We continue to believe that the re-rating potential in Crompton is driven by share gains in fans, increase in growth drivers, and recovery in lighting margin. Maintain BUY.

Beat in revenue, broad-based growth: Net revenue grew by 48% YoY (-15% in 4QFY20 and +26% in 3QFY21). ECD saw 61% growth (-14% in 4QFY20, 32% in 3QFY21, HSIE 49%), and most products saw robust growth in Jan and Feb (no base benefits), reflecting the improving underlying demand and Crompton's share gain story. ECD growth (FY21) stood at 11% (2-year CAGR at 8%). Havells' growth in the ECD segment in 4Q/FY21 stood at 71/18%, vs Crompton's at 61/11% and Orient's at 42/1% YoY. Crompton's rural business saw 117% growth in 4Q (72% in Jan and Feb). Lighting revenue was up by 15% YoY (-17% in 4QFY20, +10% in 3QFY21, HSIE +17%), but declined by 8% in FY21. B-C led lighting saw 23% volume growth. Lighting B-B was muted.

Robust margin expansion: GM contracted by 80bps YoY to 31% (+70bps in 4QFY20 and +13bps in 3QFY21). Lighting EBIT margin was at 16.1% with an expansion of 840bps YoY (-380bps in 4QFY20 and +539bps in 3QFY21). ECD EBIT margin dipped by 187bps YoY (+51bps in 4QFY20 and -9bps in 3QFY21). Employee/Other expenses grew by 30/32% YoY as operations returned to normal for the company. EBITDA margin was healthy at 15%, seeing an expansion of 122bps YoY (-21bps in 4QFY20 and 206bps in 3QFY21) vs expectation of 56bps YoY expansion. EBITDA grew by 61% YoY (HSIE 46%). APAT grew by 64% (adjusting for income tax).

Con call and BS/CF takeaways: (1) Crompton took price hike in Jan/Apr (combined 8-10%), while cost inflation is 20%; (2) Crompton is the largest share gainer in fans; (3) distribution reach for fans at 55%, geyser 50%, lighting 30%; (4) market share in fans and residential pumps was at 27-28%, LED lighting at 8-10% and low single digit for mixer grinders and air coolers;(5) FCF was at INR 8bn vs. INR 4bn in FY20.

Shares of Crompton Greaves Consumer Electricals Ltd was last trading in BSE at Rs.403 as compared to the previous close of Rs. 397.9. The total number of shares traded during the day was 57122 in over 1917 trades.

The stock hit an intraday high of Rs. 405.9 and intraday low of 400. The net turnover during the day was Rs. 23055455.

Source : Equity Bulls

Keywords