Markets
Crompton Greaves in pain as Butterfly flutters
Summary
- However, the steady performance across Crompton’s core businesses – electrical consumer durables and lighting products – is a bright spot
Crompton Greaves Consumer Electricals Ltd is facing challenges with its acquired portfolio, Butterfly Gandhimathi Appliances Ltd. Contrary to initial expectations, the Butterfly acquisition is unlikely to boost earnings per share in FY24. Butterfly remains a work-in-progress and channel correction initiatives are expected to last for another two quarters. Well established in southern India, efforts are underway to expand its presence nationwide. Additionally, there are plans to leverage Butterfly’s manufacturing facilities for Crompton’s products, such as mixers, which are currently produced by external suppliers.
In the nine months ended December (9MFY24), Butterfly achieved an Ebit (earnings before interest and tax) of ₹34 crore but faced a loss of nearly ₹2 crore in the quarter ended December (Q3FY24). Weak corporate sales was only partly offset by the healthy traction in the retail and e-commerce channels in Q3. Plus, advertising expenses were higher.
Analysts have revised Crompton's earnings forecasts downwards, taking into account Butterfly's performance. “We lower our earnings per share estimates by 7% for FY24E and 4% for FY25E on delay in Butterfly breakeven and continued advertisement expenses dragging margin," said analysts at Elara Securities (India) in a report on 16 February.
However, the steady performance across Crompton’s core businesses – electrical consumer durables (ECD) and lighting products – is a bright spot. The ECD segment has seen notable revenue growth, outpacing peers. For instance, Crompton's revenue in this segment grew 13% year-on-year for the nine-month period ended December, compared to a 1% growth for Havells India Ltd. Crompton's fan category benefited from an increased focus on premium products. The lighting segment also saw revenue growth in Q3 after many quarters of decline.
Also, Crompton has taken price hikes in fans and pumps in February, which would aid Q4 earnings. “While Crompton’s performance has improved in patches, a more consistent and broad-based improvement is required to drive a re-rating of the stock," said analysts at Kotak Institutional Equities in a report on 16 February. Through its Crompton 2.0 strategy, the company aims to grow faster than the industry average and enhance its premium product portfolio.
Investors seem to have taken note of the challenges the company faces . So far in 2024, Crompton’s shares are down by over 7%, while the benchmark Nifty 50 index has gained nearly 2%. Sure, valuations are not demanding. The stock trades at nearly 32 times its FY25 estimated earnings, according to Bloomberg data. In comparison, larger peer Havells India’s shares trade at 54 times.
