Crompton Greaves - Operating Leverage, Premiumisation To Drive Margins: Nirmal Bang

Nirmal Bang Report

Broader electrical consumer durable demand has seen a slowdown in Q2 FY25. Inflationary pressures continue to impact rural demand. Channel inventory for fans are at normalised levels, with no major pricing action done recently.

Premiumisation + channel engagement + channel extraction = main strategy initiatives for Crompton Greaves Consumer Electricals Ltd. in the medium term.

The company has started leveraging Butterfly’s manufacturing facilities for Crompton’s mixers and grinders, and is expected to do so for Cooktops too.

B2B lighting saw slower government tendering in the current quarter, and B2C Lighting demand remains tepid (with continued value erosion). 

Going forward, regulatory changes in manufacturing standards are expected to keep manufacturing cost on the higher side. However, this is also expected to expedite the shift from the unorganised to organised, with consolidations happening.

While we remain structurally positive on Crompton’s long term business prospects, we maintain Hold with a revised target price of Rs 490. This implies a PE of 40 times on Sept’26E EPS and it is at par with the five-year historical average PE multiple on one-year forward basis.

We believe that the multiple is fair and it adequately captures:

1. ~25% EPS CAGR over FY24-FY26E, and

2. post-tax RoCE of ~18% in FY26E.

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