Home / Markets / Mark To Market /  The macro challenge for upturn in Crompton Greaves

Crompton Greaves Consumer Electricals Ltd’s shares are down by 4% since it announced its September quarter (Q2FY23) results last week. The stock has fallen 22% in the past year, in sharp contrast to the 2% gain of the Nifty 50 index.

“Demand for electrical goods has not picked up after May and that remains a worry for investors in the Crompton stock. Kitchen appliances remain on a strong footing, but demand in Crompton’s electrical consumer durables and lightning products has been weak. Plus, Ebitda margins have remained weak for the past two quarters," said Harshit Kapadia, an analyst at Elara Securities (India).

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A sharp rise in other expenses weighed on Ebitda margins in Q2. The consolidated Ebitda margin dipped by 410 basis points (bps) year-on-year (y-o-y) and 44 bps sequentially to 11.4%. One basis point is 0.01%.

The company maintains that Q2 was a difficult quarter because of last year’s unfavourable base and a high retail inflation creating weak consumer demand.

Consolidated revenues increased by almost 23% y-o-y aided by the integration of Butterfly Gandhimathi Appliances. Standalone revenues, however, fell by 4% y-o-y.

Among segments, revenues from electric consumer durables (ECD) and lightning products were lower by 3% and 7%, respectively. Within ECD, the appliance business saw 12% growth, although, the fans business saw a slowdown towards the end of Q2. Within lighting, the conventional lighting business fell by 35%.

Post Q2 results, some analysts have trimmed their earnings estimates. The FY23 estimated earnings per share stands reduced by 18% to 8.9, reflecting the soft first half of FY23 performance and uncertain outlook, points out a Kotak Institutional Equities report dated 27 October. “Although we do expect growth to recover in coming quarters as temporary headwinds fade, a lot still hinges on inflation and the health of consumer demand," said the report.

As such, valuations of the Crompton stock appear reasonable, though sharp near-term upsides may be capped. The stock trades at nearly 30 times estimated earnings for FY24, showed Bloomberg data. There is scope for Crompton to gain market share in the fans segment following the implementation of the new Bureau of Energy Efficiency norms. “As Crompton executes its kitchen portfolio expansion, managing growth with returns will remain critical given significant competition and current growth challenges," said a report by Nuvama Research.

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Pallavi Pengonda

Pallavi Pengonda is a financial journalist producing cutting edge commentary and analysis on companies, economy and market trends. Over her journalism career spanning more than 14 years, she has covered topics across sectors such as oil & gas, consumer, aviation and new age tech companies. She heads the Mark to Market team and joined Mint in June 2010. She lives in Bengaluru. She is an art enthusiast and likes to paint in her leisure time.
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