Crompton Greaves Consumer Electrical Ltd’s growth is expected to accelerate meaningfully in the coming quarters with the restructuring in Butterfly nearing completion and demand gaining ground in the segments that were lagging.
A harsh summer likely aided the household electrical equipment maker Crompton’s June quarter results, thanks to its strong footing in fans and air coolers. The company derives 74% and 14% of its revenue from the electrical consumer durables (ECD) and lighting segments, respectively. The rest comes from Butterfly Gandhimathi Appliances Ltd, which Crompton had acquired in FY22.
Crompton took a strategic call to shift Butterfly’s focus from B2B to retail by spending on brand building and developing retail distribution network. B2B is a low margin business and reduces a company’s ability to charge a brand premium, hurting longer-term profitability.
This should boost earnings ahead. “With demand witnessing initial signs of recovery, stabilizing commodities, and Butterfly restructuring nearing an end, Crompton’s operational performance is expected to witness improvement from FY25 onwards,” said analysts from Antique Stock Broking. “(This) will help the company deliver 27% earnings CAGR over FY24–27E as against -10% CAGR over FY21–24,” they added. CAGR is compound annual growth rate.
Butterfly is mainly focussed on kitchen appliances such as mixer, grinder, gas stoves etc with a strong presence in the South. In FY24, owing to one-time settlements, higher marketing spends, extended producer responsibility, Butterfly’s Ebit dropped as much as 90%.
The acquisition also meant an increase in debt for Crompton, reaching about ₹1,600 crore at FY22-end, increasing its finance costs. While it has already repaid ₹1,000 crore, the rest is projected to be paid this year, aiding its profitability.
To be sure, Crompton’s core businesses too have not been performing well. Despite strong revenue growth of 13% CAGR during FY21-24, the ECD business could manage an Ebit growth of only 2% CAGR due to higher competitive intensity. During the same timeframe, the lighting business faced subdued demand and stiffer competition leading to stagnant revenue and an Ebit drop.
Going ahead, both segments are projected to record earnings growth in the range of 15-20% aided by higher institutional spending and expansion of B2C product portfolio. New product launches formed about 10% of the company’s sales in FY24 and the momentum is expected to continue.
Investors have taken note. Crompton’s shares have gained close to 40% so far in 2024. The stock trades at 47 times estimated earnings for FY25, showed Bloomberg data. The stock may take further cues from the June quarter results.
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