MOSL: CROMPTON GR. CON (Buy)-In line revenue, margin-led earnings surprise
CROMPTON GR. CON: In line revenue, margin-led earnings surprise
(CROMPTON IN, Mkt Cap USD3.8b, CMP INR451, TP INR505, 12% Upside, Buy)
Sacrifices revenue growth for the sake of margin
- Revenue stood in line with our estimate. Two-year revenue CAGR stood at 14%, driven by the ECD segment (+18%). Cost rationalization, favorable mix, and pricing action mitigated the impact of commodity cost inflation QoQ, which led to EBITDA coming in higher than our estimate, despite higher YoY employee costs and other expenses (excluding ad spends).
- With commodity costs inching up in 2QFY22 as well, the management addressed this via: a) product premiumization, b) cost savings (of INR480m in 2QFY22), and c) price hikes of 3-4%.
- It has prioritized profitability over market share/topline growth. While this aids near term earnings, it does pose a risk to its long-term growth potential at the portfolio level and provides room for competition to gain market share. CROMPTON's dominant Entry-level Fans segment is witnessing the impact of inflation on volume growth. We cut our long-term target multiple to 40x from 45x as revenue growth is likely to lag peers like HAVL, POLYCAB, and OEL. We maintain our Buy rating with a TP of INR505/share (40x FY24E EPS). Our target multiple discount v/s HAVL stands ~20%.
Crompton Greaves Consumer Electricals Limited manufactures and markets a range of consumer products. The Company's main products/services include lighting products (luminaries and light sources) and electrical consumer durables (fan and appliances and pumps). It operates through two segments: Lighting Products and Electrical Consumer Durables. Its Lighting Products segment comprises luminaires and light sources. Its Electrical Consumer Durables segment comprises fans, appliances and pumps. It offers ceiling fans, table fans, pedestal fans, wall mounted fans, domestic exhaust fans, special fans and personal fans. It offers lighting products, including lamps, consumer luminaires, solar and lighting automation. Its household appliances include geysers, mixer grinders, toasters and irons. Its pumps are classified into industrial, agricultural and domestic pumps, and offers surface pumps, submersible pumps, accessories and pumping systems.
Motilal Oswal Financial Services Ltd. is a reputed name in Financial Services and Online Trading with group companies providing services such as Private Wealth Management, Retail Broking and Distribution, Institutional Broking, Asset Management, Investment Banking, Private Equity, Commodity Broking, Currency Broking, Principal Strategies & Home Finance.
Motilal Oswal Securities is a group company of Motilal Oswal Financial Service Limited which started as a stock trading company and has blossomed into well diversified firm offering a range of financial products and services. Motilal Oswal has built a reputation as the source for best stock trading company and this has taken a wealth of experience, knowledge and expertise, constantly working in tandem, over the years.
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