Crompton Greaves - Butterfly Gandhimathi To Be A Near-Term Drag: HDFC Securities

HDFC Securities Institutional Equities

We met the management of Crompton Greaves Consumer Electricals Ltd. which reiterated its commitment to an absolute profit-led growth mindset. The summer season has started on a positive note and Crompton has taken a 4-5% price hike in fans (cumulatively over the last few months) which has helped recoup all but 150 bps cost increase (BEE rating change led).

In the medium term, fans are poised for double-digit growth, led by-

1. an increasing premium mix (25% versus industry average of 40%);

2. a shift from unorganised to organized (BEE rating change every two years); and

3. focus on scaling up the non-ceiling portfolio.

Other ECD products (pumps, SDA and LKA) are showing promising trajectories. In lighting, price erosion intensity has reduced and it is expected to be MSD-to HSD in FY25.

Butterfly Gandhimathi Appliances Ltd. channel correction is a WIP (away from ecom/corporate/OMC in favour of retail) and will continue to impact earnings for two more quarters.

In the medium to long term, we like the Crompton 2.0 strategy, where the focus is on -

1. protecting and growing the core (fans and pumps);

2. scaling up the kitchen portfolio (both SDA and LKA) as the new vector for growth;

3. transforming the lighting business;

4. premiumisation of the portfolio, led by innovation;

5. go-to-market excellence and diversification; and

6. entry into two-three new segments.

We believe the sustained execution of the Crompton 2.0 strategy and industry outperformance can help rerate the stock.

We cut our FY24-26 earnings by 2-4%, largely on account of Butterfly Gandhimathi. We roll forward to 35 times FY26 earnings per share to arrive at a target price of Rs 380. Maintain Buy.

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