Crompton Consumer's fortunes may light up as Covid-19 lockdown eases

Crompton Greaves Consumer Electricals (Crompton Consumer) has gained about 21 per cent since May lows. While the company's March quarter performance had shown resilience on the margins front, even as sales declined, the easing of the lockdown has improved sentiment. Analysts, despite cutting their FY21 earnings to factor in the lockdown impact, have also been hopeful of a faster recovery for the company, given it’s product range, which is less discretionary and seasonal in nature.

In Q4, the profit margin maintained a strong trajectory, improving sequentially due to cost control and a superior sales-mix. Analysts believe Crompton Consumer is better placed than peers because of limited exposure to the B2B (business-to-business) or wholesale segment and less discretionary nature of products, such as fans, lighting equipment, and pumps. Pumps for agricultural purposes may make gains in the monsoon season, given a strong rural outlook.

For the March quarter, revenues had fallen 15 per cent year-on-year (YoY) and so did operating profit, but the operating profit margin at 13.8 per cent remained the year-ago level, and was better than the December quarter's 12.8 per cent. After results in mid-May, Emkay Research's analysts said market share gains and a stable margin in a tough demand scenario are key positives. The management, too, hinted at an additional Rs 100 crore cost savings over and above its ongoing cost optimisation programme.

 

Notably, before the lockdown, during January-February, volume growth was strong, led by 18 per cent growth in the electrical consumer durables (ECD) segment, wherein fans (up 21 per cent) and domestic pumps (up 19 per cent) did well. Appliances, too, grew 60 per cent led by water heaters (up 48 per cent in volumes and 97 per cent in value); mixer grinders and air coolers grew by 54-83 per cent in value.

The lighting segment, where competition continues, saw 40 per cent volume growth in LED bulbs, batons and panels, and 15 per cent in value terms during January-February. Analysts say the B2C (business-to-consumer) lighting segment may see an early recovery; the B2B lighting segment is likely to see a recovery from the March 2021 quarter.

Most analysts, thus, remain positive on Crompton Consumer even as they have cut forward earnings estimates. After results, the average target price of 26 brokerages polled by Bloomberg is Rs 248, for the stock currently trading at Rs 240. Given the near-term challenges, long-term investors may use corrections for a better entry point.