MOSL: CROMPTON GR. CON (Buy)-Robust all-round performance

​Crompton Gr. Con: Robust all-round performance

(CROMPTON IN, Mkt Cap USD2.1b, CMP INR219, TP INR260, 19% Upside, Buy)

• Results meaningfully above estimates: CG Consumer Electricals (CGCEL) reported a strong set of numbers. 2QFY18 sales stood at INR9.6b (+9.8% YoY, +15.9% YoY adjusted for excise duty on manufactured and sourced products), meaningfully above our estimates, led by market share gains in the Fans segment and healthy growth in the Lighting division (+16% YoY, +25% YoY adjusted for excise duty on manufactured and sourced products). EBITDA improved 19.3% YoY to INR1.2b, with EBIDTA margin improving 100bp YoY to 12.6%, led by close to zero spending on advertising & promotion. Net profit of INR0.7b was above our estimate of INR0.6b.
  
• Margin improvement led by lower adspend and focus on premiumization: Gross margin expanded 90bp YoY to 30.3%, led by premiumization initiatives taken by the company. EBITDA of INR1.2b (13% YoY) was meaningfully above our estimate. Operating margin stood at 12.6% v/s 11.6% in 2QFY17. Margin improvement was on account of close-to-zero ad spend during the quarter, as against INR120m in 2QFY17. Lighting business contributed 35% of revenue (v/s 32% in 2QFY17), while Electrical consumer durables accounted for 65% (v/s 68% in 2QFY17). Excluding non-cash ESOP expenditure of INR141m, the operating margin stood at a healthy 14%.