Analysts of IIFL Capital Services attended Crompton’s Analyst meeting wherein the management reiterated confidence in the Crompton 2.0 strategy with visible results w.r.t share gains amidst weak consumer demand and increasing premiumisation through a number of interventions (viz. jump in A&P spends, NPD, reach). BGAL will take two more quarters to stabilise – new lateral leadership will help position Butterfly as a lifestyle brand and drive turnaround while Crompton will continue to nurture new categories and drive growth from its existing product portfolio. Analysts of IIFL Capital Services mark down FY24/25 consolidated EPS by 3%/2% (29% Cagr over FY24- 26). Maintain ADD.
New categories drive increase in TAM –
Expansion of the existing portfolio and entry into new categories (small domestic appliances, kitchen appliances) helped Crompton to increase its addressable market three-fold to the current Rs750bn. New product development and steady entry in new categories is expected to further double its TAM to ~Rs1,400-1,500bn over the next 4-5 years. Management is confident to double consolidated revenues in 5 years with double-digit OPMs led by filling portfolio gaps, cost optimisation and expansion of BGAL portfolio in the non-South regions.
Demand bounce back post-elections:
Demand continues to be muted despite the early onset of summers in 2024; additionally, weak consumer sentiments inhibited full price pass-through, with a recovery anticipated only post-elections. Wide presence across price points, focus on premiumisation and launch of new products with robust distribution network aided share gains in fans, geysers, pumps etc.
Weakness in near-term earnings to continue:
Near-term hiccups in demand coupled with inflationary pressure to restrict earning growth in FY24. Further, strategic changes in channel mix alongside a weak demand environment will entail two more quarters of weakness in BGAL in addition to a few headwinds for Crompton in Q4FY24.
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