Focus on IOT. First mover advantage will be key to future growth.
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Crompton has done well in the core business and related diversifications, post the entry of new professional management in 2016. The new management is running the company with FMCG mindset with focus on improving 2 main levers of ROE (margin and asset turnover) as well as cash flows. However, despite stated intent of the management to explore acquisition opportunities, no deal has been concluded so far.
In an interesting development, the company is seeking enhanced amount (Rs. 2500 cr) of enabling approval from shareholders now in order to explore large opportunities. If they are successful in acquiring any interesting business, it will improve the growth potential and help in utilizing the free cash flows being generated year after year.
Recent BSE announcement
ccb15145-2919-4ce3-892b-61c4c76412b7.pdf (143.9 KB)
Disc: Invested
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Notes from AR 2021-22 iro Crompton Greaves -
- Offer products in both mass and premium segments. Covid has been a tail wind for smart electrical products as consumers have been staying at home. Company investing heavily in R&D to respond to new market trends and develop smart products that meet customer expectations.
Company’s manufacturing locations are located at - Goa, Vadodra, Ahmednagar and Baddi.
- Despite drop in Covid induced drop in demand in Q1,Q2 and RM inflation in Q4, company reported resilient financial performance for the full FY. Total sales at 4825 cr vs 4570 cr. PAT at 604 vs 494 cr !!! ( this in a covid disrupted year is commendable ). All this was driven by strong performance in Elect Consumer durable division which includes - fans, pumps and appliances. Most of the growth was driven by product premiumisation. In lighting, B2C did better than B2B. Ongoing cost saving measures helped us save 153 cr in operating costs !!!
- Company has a 5 dimensional plan to shape the future of the company-
(a) Brand excellence
(b) Portfolio excellence - by investing heavily in R&D and technology. Same is getting reflected in increased off take of premium products.
(c) Go to Market excellence - using tech, building alternate channels like modern retail, e commerce and strengthening rural distribution.
(d) Operational excellence - by continuing to invest in growth initiatives and digital enablement.
(e) Organisational excellence - continuous up skilling of employees.
- New innovations this year included bacteria killing LED bulbs, anti dust and silent fans. Both were instant hits in the marketplace. Company maintained its leadership in Fans category, led by premium fans and increased availability. In pumps category, launched mini residential pumps, solar pumps, new variants of submersible pumps. Launched water heaters, JMGs with 5 star ratings. Energy efficiency has been our key USP.
- Launched dealer portals through which dealers can directly engage with the company and can also monitor stocks and orders. This facility is being used by over 400 channel partners now. Soon, this will be available as a mobile app as well. New initiative- ’ Son of the soil’ launched to target population centres with 10k-100k populations. This initiative has taken off really well.
- Last 5 yr operating performance -
Sales - 4017, 4105,4497,4512,4750 cr
EBITDA - 502,562,634,656,780 cr
EBITDA margins - 12.5, 13.7,14.1,14.5,16.5
PAT - 283,324,403,495,605 cr
- Demand for fans is likely to be secular as India expands electrification in rural areas. Needless to say, rapid urbanisation should be here to stay. Company also intends to export to SAARC countries along with channel expansion and rural programs.
- Similarly, thrust on water and irrigation infrastructure will stimulate further growth in electric pumps segment. Pumps are also extensively used in water treatment plants which in turn has secular tail winds. Jal Jeevan mission is another tail wind for pumps market.
- Appliance industry should also see acceleration due urbanisation, nuclear families, surging rural consumption.
- Govt has announced an incentive of 4-6 pc for a period of 5 yrs to companies engaged in manufacturing of LED lights subject to min threshold investments. This will further boost domestic manufacturing , create economies of scale, enhance exports and create a robust component eco system.
- Future plans - Consumer Appliances should be an area of robust future growth. Intends to expand the core ( heater and coolers ) into smaller appliances. Home appliance business has doubled in last 3 yrs and company intends to develop full range of kitchen appliances.
Disc : invested, biased
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Crompton consumer seems to be a frontline runner for Butterfly Gandhimati.
Update.
Butterfly Gandhimati in the kitty. This can be a diversification to have dual brands in the market since CG power has also entered the consumer market with the CG logo and CG name.
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Crompton Consumer boards expectations from Gandhimathi acquisition.
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Crompton is an undisputed market leader in fans and domestic pumps with a healthy market share of around 25% and 15%, respectively. With the acquisition of Butterfly in 2022, the firm has gained entry into the fast-growing kitchen appliances segment.
Crompton Greaves Consumer Electricals Q3 concall -
Sales - 1516 cr vs 1411 cr ( including revenues from Butterfly acquisition )
EBITDA - 152 vs 202 cr, Margins at 10 vs 14 pc
Net Profit - 88 vs 148 cr
New BEE energy norms being implemented for fans wef 01 Jan
Company didn’t load the channel with old / lower cost inventory by producing more of non compliant fans
Hence fans category degrew in Q3
Have started loading channel with BEE compliant fans web early Jan
Wrt Pumps, have taken price cuts to be competitively placed in the Mkt
Also, revamped entire range of pumps
Small appliances business growing robustly. Having an yearly run rate of 1000 cr. Has achieved significant scale. This,without counting Butterfly business
Making aggressive investments in R&D, marketing, training and large appliance business
Higher interest cost ( against borrowings for Butterfly acquisition ) also hitting P&L
Have revamped 400 retail stores wrt touch and feel iro Crompton products. Will do the same for another 1100 stores next yr
Rural and E-commerce grew strongly even in this weak qtr
Butterfly sales grew marginally in Q4 when most kitchen appliance players have shown de-growth. Butterfly integration progressing well
As the topline starts to grow, Margins likely to bounce back to historical levels
Lighting business also had a tough Qtr
B2C part of lighting business likely to bounce back faster than B2B part. Have underachieved in the lighting space in last 3 yrs. Management taking steps to correct the same
Kitchen appliance with Butterfly integration should be a high growth area for the company
Crompton + Butterfly is now one of the largest player in Kitchen appliance space @ 2000cr annual sales ( only behind TTK prestige …imo )
Large appliances currently have a small base in Crompton’s business. But this can be a fast growing large category over long term
Real Estate mkt picking up. But the fans are one of the last things to be installed. So there is a gap of about 48 months or so before RE pick up and surge in Fans demand. That makes company optimistic going fwd
Disc: holding, biased
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Nice read. Crompton has not foregone its focus on fans and pumps.
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Stock hit 52 week low on this news as market was worried about lack of operational experience of Mr. Ghosh.
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Comparison between Havells India & Crompton Greaves Consumer Electricals limited.
https://forum.valuepickr.com/t/havells-india-ltd/261/81?u=mahima
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Crompton Greaves consumer electricals Q1 updates -
Consol Q1 outcomes -
Sales-1877 vs 1863 cr
EBITDA-186 vs 220 cr (margins@10 vs 12 pc)
PAT-122 vs 126 cr (due higher other Income)
Segment wise revenues -
ECD - 1429 vs 1347 cr, up 6 pc
Lighting - 229 vs 262 cr, down 13 pc
Butterfly - 219 vs 254 cr, down 14 pc
Segment wise EBIT and margins -
ECD - 182 vs 229 cr ( margins @ 12.7 pc down 430 bps )
Lighting - 27 vs 23 cr ( margins @ 11.9 pc, up 310 bps )
Butterfly - 16 vs 22 cr ( margins @ 7.3 pc, down 130 bps )
ECD -
Fans grew 5 pc
Pumps were flat due unseasonal rains
Geysers , Coolers, Mixer Grinders grew - 11, 10 & 50 pc
Built in kitchen appliances ( new business )- revenues stood at 11 cr
New B2C structure created for lighting business
Launched outdoor range of LED lighting
Have created a new grounds up portfolio of BLDC fans instead of just converting the older models into BLDC ones. Company feels - this segment deserves independent attention
Total sales ( of fans ) coming from premium division now at 28 pc. This division saw strong growth
A&P sales stood at 4.5 pc of sales in Q1 vs 3 pc LY … a big jump
Company’s range of BLDC fans is the widest in the Industry
In the process of merging Butterfly and Crompton go to mkt synergies. This ll massively improve Butterfly’s reach in North+West India
This should happen in next few Qtrs
Have expanded Butterfly’s product portfolio in cooking, food processing and cookware range
Demand in Apr, May was subdued. Picked up in June
Spending heavily in A&P across the organisation, specially behind butterfly brands
Currently have 54 Crompton Brand stores for sale of built in Kitchen appliances. Chimneys and Hobs showing good momentum
Company maintaining negative working capital cycle hand has been generating robust cash flows
Cash and cash equivalents stood at 783 cr vs 657 cr QoQ
Plan to enter 2-3 new segments in next 3-4 yrs. Did not disclose the name of the segments for competitive reasons
Company has improved/corrected the sub-optimal gross margins in Butterfly, Lighting business in Q1. Looking to take some price hikes in Fans in Q2 / Q3 to completely offset the costs of BEE transition
Premiumization in fans should also help drive gross margins. Current share of high value / premium fans in late 20s vs late teens a couple of years ago
Also looking to sell more ceiling lighting products vs battens/bulbs due better pricing there
Similarly, company is working hard to premiumize the Butterfly’s portfolio as well
Disc : holding, biased
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A little rough work from my end.
A gradual move into switchgear will help improve sales in Lighting due to complementary market position similar to fans. Wires may not be high margin but it will help increase economies of scale as copper wires are the main component of all other items manufactured by Crompton.
White goods market is a bigger and tougher nut to crack with only a couple good names like Voltas and Symphony having the sustainability in the extremely competitive market. Others like IFB and Onida are still struggling. Still, acquisition of a legacy brand with good recall like Onida for e.g.( they were looking to sell before) can work similar to butterfly acquisition.
Just my thoughts. No news confirmations ( rumors )or buy/ sell recommendation.
Switch Gears and Switches do sound like natural extensions. Another possible area can be - male and female grooming like - trimmers, dryers, straighteners, shavers etc. Water purifiers can be another target area in my opinion
Wires are a little capital intensive
Getting into electronics - may be a tough nut to crack
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great news for company…
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