Q2FY24 Review: Crompton Consumer: Quest for growth and share gains

8 Nov 2023 , 02:30 PM

While Crompton delivered in line performance, BGAL continues to lag. Bounce back in business volumes despite soft consumer sentiments, offers hope for acceleration in H2FY24 if sentiments turn positive post festive season. Crompton continues to play on the front foot with aggressive ASP spends to drive market leading volume growth, keeping the rest of industry on its toes when it comes to profitability. Having rest business OPMs to teens, Crompton’s journey to drive RoEs >20% post BGAL acquisition needs to be watched out for. Analysts of IIFL Capital Services retain ADD with target price of Rs330 (28x FY26 EPS), implying 16% upside. 

Crompton – ECD back on growth trail, but OPMs lag: 

Driven by strong volumes, fans, appliances and pumps grew 18%/17/10% YoY while large in-built kitchen portfolio to continues to scale up. Though broad based consumer sentiments are still soft, Crompton managed marginal price hikes starting Sep’23 in Fans (more planned in H2) and is targeting gradual increase in premiumisation portfolio, GTM gaps and investments in brand & new products. Lighting sustained Ebit margins of 10.5% despite disruption in B2C realisations. B2B lighting is seeing green shoots, but Mgmt. is betting on GTM changes and portfolio upgrade in lighting to stabalise growth prospects in this segment. 

BGAL – focuses on driving operational synergies: 

Even as the legal merger/ amalgamation of BGAL with Crompton was rejected by BGAL minority holders, initiatives to drive operational synergies continue unabated (targets to cut group overheads by ~10% by FY25). Crompton has delivered ~4pps increase in GMs in BGAL in H1FY24 at 39% while driving growth optimum channel mix and launching portfolio upgrades. 

Keep expectation soft: 

Analysts of IIFL Capital Services 25/26 consolidated EPS for Crompton is cut by 3/4%, respectively while FY24 is broadly unchanged. This is largely led by BGAL where they remain conservative and have cut BGAL FY25-26 EPS by ~25% on soft market outlook and slower OPM expansion. Crompton targets to enter in 1-2 new categories every year with accelerated investments in team, reach and portfolio. After the recent de-rating, stock trades at 29x FY25/ 23x FY26 EPS. Retain ADD.