Crompton Consumer: Leadership transition underway

27 Apr 2023 , 12:10 PM

Recommendation: Buy

Target Price: Rs 285

 

Management highlighted that changes in the senior leadership team at Crompton were not unexpected and went through detailed succession planning process. Management accepts recent underperformance of Crompton vs peers, and indicated structural changes in the organisation and strategies to realign itself with market dynamism. Despite a 3-month transition period from Mathew to Promeet, near-term challenges from contagion effect on senior-mid level exits, uncertainty with trade partners, increased competition — may hurt. Results of strategic realignment towards growth vs margins and Crompton 2.0 under the new leadership, will provide incremental visibility.

New Leadership needs to monitor operational execution: 

While Mathew’s exit is ascribed to his inability to clear the selection process, Promeet Ghosh (new MD & CEO) brings business continuity with deep understanding of the portfolio and the organisation, from his close association with Crompton since 2016 (as Board member). He has experience in managing long-term investee companies at Temasek, bringing a top-down approach to sustainability. Nevertheless, he needs to build a bottom-up understanding and feet with the channel partners and market to execute strategies effectively. Shantanu will continue to aid integration with BGAL.

Rebalancing growth, profitability: 

Crompton has started realigning its business strategies to reduce stickiness towards GMs and profitability, and focus on wider revenue growth and volume share to address underperformance vs peers. This will reflect in increased spend on A&SP, R&D, new launches and GTM to drive higher revenue growth. Mgmt expects results in Pumps and Fans to be visible from Q4FY23 itself. 

Valuations will take time to recover: 

De-rating of the stock in the last 6-9 months has been glaring, given the underperformance vs peers, and risks of KMP change. At 20x FY25 EPS, the stock is trailing the FMEG pack; re-rating will be driven by minimal slippages in execution and driving business continuity in the coming 12 -18 months.