MOSL: CROMPTON GR. CON (Buy)- FY18 Annual Report Update-Five-pillar strategy to drive structural growth

Crompton Gr. Con | FY18 Annual Report Update: Five-pillar strategy to drive structural growth; Free cash flow generation remains strong

(CROMPTON IN, Mkt Cap USD2.4b, CMP INR261, TP INR305, 17% Upside, Buy)

We went through the FY18 annual report of Crompton Greaves Consumer Electricals Limited (CROMPTON) to get updates on and insights into its: (a) five- pillar strategy for growth, (b) increasing share of premium category products through new product launches, and (c) cash flow generation, given its stated objective to generate cash flow of at least 100% of net profit.

 Focus remains on five-pillar strategy

CROMPTON had devised a five-pillar strategy to achieve its stated growth objectives (that is, grow faster than the industry) and maintain market leadership in the categories it operates in. These include (a) brand excellence, (b) portfolio excellence, (c) go-to-market excellence, (d) operational excellence, and (e) organization excellence. Our FY18 annual report analysis suggests that this continues to be a focus area for the company, which is now attempting to further penetrate the strategy at multiple levels.

 Brand excellence: Over the last two years, CROMPTON has focused on developing its brand around the younger consumer so as to ensure brand longevity and consumer relevance over a longer period of time. CROMPTON has adopted multiple marketing platforms to reach the targeted audience, has done extensive research, and has launched products like Anti-dust fans, Aero 360, and color changing LEDs. These have helped the company to strengthen its brand among consumers and retailers. CROMPTON spent 2.6% of sales on advertising and sales promotion in FY17 and FY18, and its intent is to have advertising spend in line with industry standard.