MOSL: CROMPTON GR. CON (Buy)-Weak lighting segment performance impacts results
CROMPTON GR. CON: Weak lighting segment performance impacts results
(CROMPTON IN, Mkt Cap USD2.1b, CMP INR226, TP INR270, 19% Upside, Buy)
- Earnings miss estimates marginally: 1QFY20 revenue grew 12% YoY to INR13.5b (in line with our est. of INR13.7b), while EBITDA was up 15% YoY to INR1.9b (5% below our est. of INR2b). Reported EBITDA margin improved 30bp YoY to 14.2% (lower than our est. of 14.7%), while other income came in higher than our expectation at INR173m. Thus, adj. PAT at INR1.2b was 6% below our expectation of INR1.3b.
- Lighting segment performance disappoints: Lighting segment revenue declined 2% YoY to INR2.7b (our est. INR3b; +12% YoY). Revenue was impacted by (a) price erosion witnessed in the LED segment, (b) decline in the conventional lighting segment (21% YoY decline), and (c) B2B sales affected by elections. EBIT declined 25% YoY to INR141m (our est. INR307m) on account of 170bp margin erosion to 5.1% (our est. 10%). Margin impact was on account of (a) 300bp YoY higher ad spends during the quarter, (b) 200-300bp impact due to incremental provision for ECL, and (c) investment in the B2B business. Management expects Lighting margins to revert to double-digits on sustainable basis gradually.
- ECD segment makes up for weak lighting segment performance: ECD segment registered healthy 16% YoY revenue growth to INR10.7b (our est. INR10.6b), supported by strong double-digit revenue growth across fans, pumps and appliances. EBIT margins at 20.3% (+80bp YoY), were ahead of our est. of 19.5%. Margin expansion was supported by better revenue mix.
- Maintain Buy: We like CROMPTON for its strong product portfolio, established brand, market leadership, wide distribution network, robust RoE/RoCE profile and healthy free cash flow generating business model. We maintain our Buy rating with TP of INR270 (30x Mar'21 EPS).
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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