Crompton Greaves Consumer's Q1FY20 results (Outperformer) - Strong ECD performance, lighting to see gradual uptick
Q1FY20 standalone result highlights
- Adj. PAT +18% yoy to Rs1.23bn: led by strong ECD performance, partially offset by weak lighting business. Revenues +12% yoy to Rs13.47bn, OPM +40bps to 14.3% and EBITDA +14.8% yoy to Rs1.92bn.
- Strong ECD performance: with +16% yoy revenue growth to Rs10.7bn led by a strong summer season, continued efforts on innovation and premiumization across categories. Fans (premium +24% yoy; 1% mkt share) and pumps grew ~15% yoy (sustained traction in Crest Mini), water heaters grew 44% yoy (revamp of portfolio) and coolers +138% yoy (launch of ‘Optimus’ desert cooler; low base). Margins +77bps yoy to 20.3% led by improved product mix & positive operating leverage.
- Lighting business disappoints: Revenues declined 2% yoy to Rs2.74bn due to 21% decline in conventional lighting, sustained LED price erosion and slowdown in B2B business on delay in govt. projects (elections). However, revenues were supported by EESL revenues of Rs420mn (Rs180mn in 1Q19) driving 12% growth in LED volumes (4% value growth). While gross margins +100bps, EBIT margins declined sharply to 5.1% (-157bps yoy; -631bps qoq) due to higher ad spend (~300bps impact; spend towards premium products), provision for bad debts (~200bps) and investment in building capabilities for B2B segment.
Conf call highlights: 1) Focus on innovative & premium products continue – ‘Aura Fluidics’ fan (5yr warranty vs industry avg. of 1-2 years), ‘Optimus’ desert cooler, Lyor (5star LED) and anti-bacteria lamp (kills 80% bacteria; 20% price premium) (2) A&P spend higher in 1Q20 at Rs450mn due to Cricket World Cup; while focus on A&P would sustain, the spend would taper down through the year (3) prudent provision policy for delayed payments from institutional clients impacted lighting margins by ~200bps (4) Mgmt believes double digit lighting margin is sustainable (5) Pick up in government lighting projects started now post elections (6) New nationwide B2B management and sales force to ramp up B2B lighting segment. (7) Aim for top 3 players in geysers & coolers in 3 years
Impact on financials: Cut FY20E/21E EPS by 3.5% each to Rs7.3 and 8.9
Valuations & view
Crompton’s focus on innovation and premium products continues to drive growth and market share gains as seen in ECD. While lighting saw margin stress, this is likely to be transient as ad spend & provisions normalise. Concurrently, focus on new segments such as coolers and geysers would drive growth. At 25x FY21E earnings, we believe valuations are attractive in view of 22% earnings CAGR over FY19-21E and superior return ratios (35%+). Reiterate Outperformer.
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.
IDFC Securities Ltd., a subsidiary of the Infrastructure Development Finance Company (IDFC) wherein the Government of India holds a 20% interest, is India's leading equities broker catering to most of the prominent financial institutions, both foreign and domestic investing in Indian equities. A research team of experienced and dedicated experts ensures the flow of critically investigated stock ideas and portfolio strategies for our clients. Our coverage spans across various growth sectors such as agriculture, automobiles, Consumer Goods, Technology, Healthcare, Infrastructure, Media, Power, Real Estate, Telecom, Capital Goods, Logistics, Cement amongst other sectors. Our clients value us for our strong research-led investment ideas, superior client servicing track record and exceptional execution skills.
Unfortunately, this report is not available for the investor type or country you selected.
Browse all ResearchPool reportsReport is subscription only.
Thank you, your report is ready.
Thank you, your report is ready.