Strong prospects already priced in for Crompton Greaves after Q4 results

Good results for the January-March quarter (Q4) of FY24 and strong seasonal demand have led to strong investor interest in Crompton Greaves (CG) Consumer Electricals which is hitting new highs.

While there’s bullish consensus on the company’s future performance, the stock has gained over 40 per cent in the last six months and valuations may become stretched.

The Q4FY24 revenue rose 9.5 per cent YoY to Rs 1,960 crore.

The ECD (Electronic Consumer Durables) revenue climbed 14.3 per cent YoY while lighting revenue was flat and the revenue of Butterfly Gandhimathi (which was merged in 2023) fell 12.2 per cent.

The gross margin expanded 37bps YoY to 25 per cent due to cost savings and a better product mix. However, the EBITDA margin fell 142 bps due to higher ad-spend (up 29 per cent YoY) and EPR (Extended Producer Responsibility) provisioning of Rs 15.4 crore. 

Interest costs were down 43.2 per cent YoY which pushed up profit after tax (PAT) 5.5 per cent YoY to Rs 138 crore.

The revenue of the appliances business grew 27 per cent YoY, led by coolers (up 33 per cent) and Small Domestic Appliances or SDA (up 35 per cent).

The company is No.1 in geysers on the e-com channel. The SDA business has been growing 30 per cent YoY for several quarters. Sales of large kitchen-appliances in FY24 were Rs 61 crore, with a Rs 25 crore loss at EBITDA level.

The company continues to invest in this business and is setting up a manufacturing line for kitchen appliances in its Baroda plant. But industry-wide slowdown, and ongoing channel realignment and a one-time settlement hurt Butterfly’s revenue. The management expects growth to bounce from Q2 but margin recovery in Butterfly will be crucial.

Fans grew in double digits in FY24, with sales crossing 20 million units. Growth was led by premium fans, which are selling much faster. The company claims to have gained market share in ceiling and premium fans and sees an opportunity seen in TPW (Table/Pedestal Wall) and domestic exhaust fans.

While competitors did reduce prices, the company hiked prices thrice in the last six months and is prepared to hike again if required. It also hiked prices in pumps and it has outstanding solar pump orders of Rs 100 crore.

Given a focus on innovation, the company spent Rs 71 crore on R&D in FY24. It filed 85 design registrations along with 17 patent registrations, of which 10 have been granted. Alternative channels (e-com, rural) account for 20 per cent of sales. The rural channel grew 23 per cent while e-com sales crossed Rs 100 crore for the third quarter in a row. Export revenue was Rs 100 crore. The FY25 capex was pegged at Rs 80-100 crore.

The EPR impact for Butterfly was Rs 12 crore. Management is focusing on optimizing the channel mix for Butterfly and expects revenue growth from Q2. Investments in people and A&P are largely done and management expects double digit margins for Butterfly, long term.

CG Consumer Electricals has raised A&P expenditure to 3.4 per cent of annual sales. In FY24, the company allocated Rs 270 crore towards A&P, up 49 per cent over FY23. The momentum of growth in ECD should continue and Butterfly should rebound with better margins. However, at Rs 425, valuations may reflect the anticipated growth.