MOSL: CROMPTON GR. CON (Buy)-In-line operational performance, ECD business impacted by GTM strategy

Crompton Gr. Con: In-line operational performance, ECD business impacted by GTM strategy implementation-led disruption

(CROMPTON IN, Mkt Cap USD2.3b, CMP INR231, TP INR270, 17% Upside, Buy)

• In-line results: CROMPTON’s results were broadly in line with expectations. Sales grew 7.6% YoY (12.9% YoY on an LTL basis) to INR11.3b, driven by healthy growth in the Lighting division (+11.8% YoY, +21% YoY LTL). However, the Electrical consumer durables (ECD) segment exhibited a subdued performance (+1.9% YoY, 10% LTL growth), impacted by the implementation of the go-to-market strategy in the north region, which led to sales decline because of inventory destocking. Within ECD, post a weak 3QFY18, domestic pump sales picked up and the pump segment grew by 13-14% YoY. EBITDA for the quarter improved 27.5% YoY to INR1.6b, with the margin improving 230bp YoY to 14.6%, led by a better revenue mix. Net profit of INR1.0b (+29% YoY) was in line with our estimate. For FY18, sales stood at INR46b (+4.6% YoY, ~9.3% YoY LTL), EBIDTA at INR5.3b (+10% YoY) and adj. profit at INR3.2b (+14.3% YoY).
• Margins improve led by better revenue mix and cost-reduction measures: Gross margin expanded 210bp YoY to 31.6%, led by (a) a revenue mix improvement and b) continued cost-reduction measures. EBITDA of INR1.6b (+27.5% YoY) was marginally ahead of our estimate. Operating margin expanded 230bp YoY to 14.6% v/s 12.3% in 4QFY17. Lighting business, which contributed 30% of revenue (v/s 28% in 4QFY17), registered a 470bp YoY margin improvement to 11.1%. ECD, which accounted for 70% of revenue (v/s 72% in 4QFY17), registered a 270bp YoY margin improvement to 21.7%.