Crompton surprises Street with Q3 profit; analysts remain bullish on stock

While lighting segment saw continued pricing pressure, the electrical consumer durables segment was the show stopper in December quarter

Crompton Greaves Consumer Electricals’ (Crompton Greaves’) better-than-expected profit came as a surprise to the Street. On a day when the leading indices were in the red, the stock scaled to its 52-week high before closing 3.6 per cent up. Analysts indicate there could be more gains ahead for the electrical and consumer goods maker.
 
For the December quarter, though the company’s lighting products segment (a fourth of revenues) saw continued pricing pressure and hence led to a 9 per cent year-on-year decline in revenues (excluding EESL), the electrical consumer durables (ECD) business saved its blushes, with growth of 11 per cent.
 
Fans, domestic pumps, and appliances (such as geysers) continued to drive growth in its ECD business, indicating increasing acceptance of the company’s products. A surge in geyser volumes (up 66 per cent) drove sales of appliances, while fans and domestic pumps continued to grow at a decent pace of 8 per cent.
 
Although sales of agricultural pumps were hit by unseasonal rains, it may pick up moving forward. Market share in fans increased further by 80 basis points (bps) to about 27 per cent. A higher share of premium fans, at about 20 per cent (industry average of 10 per cent), also aided margins. In geysers, too, its ranking jumped three spots to fourth.
 
Lightings volumes, too, continue to grow. Crompton Greaves’ market share increased by 100 bps in LED lamps too, as LED panel and battens registered 15 per cent volume growth.

The B2B (tender and institutional) business continues to experience slowdown in government/EESL orders. Overall, in lighting business, pricing pressure YoY may have pulled down the segment’s profit by 31 per cent. However, profit was up 29.6 per cent sequentially.
 
Notably, pricing pressure in LED bulbs is now lower and may stabilise.
 
December quarter profits were driven by ECD (segment profit up 17.6 per cent YoY). Net profit at Rs 161 crore was helped by tax write-backs of Rs 57 crore. However, even adjusted for tax write-backs, it was ahead of estimates of Rs 101 crore.
 
The ECD segment will continue to be a key growth driver. As inventory build-up for products like fans, coolers and water pumps picks pace in the March quarter, launch of new products/models of fans and coolers should drive growth.
 
All five analysts polled by Bloomberg after the results have a ‘buy’ rating on the stock; the average target price being Rs 306.