Crompton Greaves Consumer share price: EMKAY says BUY - Here is why

Crompton Greaves Consumer share price: Emkay said that Crompton delivered strong performance in Q4, with EBITDA beating Emkay’s expectations by 6%. ECD segment revenues saw a healthy 2-year CAGR of 17%, driven by growth across product categories and channels, market share gains in fans and rural expansion. After many challenging quarters, the lighting segment registered 15% yoy growth in revenue, supported by 23% volume growth in the B2C business. Despite weak B2G business, EBIT margins expanded by 841bps yoy to 16.1%, driven by cost optimization. Currently, channel inventory for Fans is higher than last year. A gradual recovery in revenue is expected from Q2, similar to that of last year. Margins should remain impacted for 1-2 quarters due to commodity headwinds and the lag in implementing price increases. Emkay reduced FY22-23E EPS by 2-4% as we factor in lower revenues and higher costs due to prevailing commodity inflation. Superior performance vs. peers and favorable valuations keep us constructive. Emkay Retains Buy with a revised price target of Rs 480 (43x FY23E EPS) vs Rs 490.

Crompton Greaves Consumer Consolidated revenues rose 48% yoy and came in 2% ahead of expectations. The growth and beat was driven by both the segments. EBITDA was 6% above our estimate, led primarily by lower-than-anticipated other opex. EBITDA margins expanded 122bps yoy while gross margins contracted 81bps, negatively impacted by commodity price inflation. The bottom line was boosted by a one-time tax write-back and a meaningful jump in other income. The performance of the lighting segment was impressive, driven by the B2C business, with EBIT outpacing our estimates and margins expanding 841bps yoy to 16.1%. ECD segment’s margins contracted 187bps yoy on commodity price pressures, offset in part by price increases.

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Crompton Greaves Consumer Management reiterated its strategy to focus on new product launches, distribution reach expansion across the categories, full-fledged product portfolio ramp-up in appliances, and cost optimization to mitigate commodity price impact. The Lighting segment has seen a structural change with stabilization in pricing, auguring well for sustained double-digit margins going forward. Commodity inflation should be offset through price increases, premiumization and cost savings. Crompton Greaves Consumer is targeting to achieve cost savings of Rs1.8bn in FY22 under project ‘Unnati.’ Majority of these savings will be reinvested for future growth through enhanced R&D investments, brand strengthening, distribution expansion and accelerated pace of new product launches, in Emkay’s view. 

Crompton Greaves Consumer Key risks: 

Delayed demand recovery, market share losses, slow execution of new product launches, supply-chain disruptions, and sustained commodity price inflation.