RESULTS REVIEW 3QFY18 25 JAN 2018 Crompton Greaves Consumer Electricals BUY HDFC securities Institutional Research is also available on Bloomberg HSLB <GO>& Thomson Reuters Structural story Crompton disappointed on revenue growth while EBITDA margin was inline. Net revenue grew by 6.7% to Rs 9.4bn while like-to-like revenue growth was at 12% (expectation was 15%). The good: lighting growth was at 23%, the bad: ECD segment posted only 7% growth and the ugly: geysers reported volume decline in a seasonally strong quarter! Crompton gained retail market share in Fans and LED lamps. Focus on premiumisation aided in posting >25% growth in premium fans and 57% in LED lamps. Premium fan contributes ~20% in total fans vs. 7% in FY15. Within 2 years of pursuing the LED business, it now contributes >70% of lighting business which is a remarkable achievement. However with Crompton’s caliber we believe it disappointed with weak growth in ECD at a time when its peers (Havells and V-Guard) reported healthy growth. Mgt. stated that they faced intense heat in geysers and domestic pumps. Mgt’s focus area remains the same, i.e. (1) Cost rationalisation (2) Premiumisation and (3) Competitive pricing. We continue to like Crompton owing to (1) Premiumisation in fans, (2) Healthy growth in LED, (3) Brand leveraging in appliances (4) Focus on efficient distribution (ROI model) and (5) Asset-light business model. We model 27% earnings CAGR over FY18E-20E. We reiterate BUY with a TP of Rs 290, based on 35x Dec-19 EPS. Highlights for the quarter Lighting saved the day: Fan growth was still not inspiring, could be because of delay in restocking. The co. lost market share in geyser and pumps. The only bright spark was in lighting which clocked 23% growth, driven by strong demand for LED lamps. EBITDA (Ex-ESOP) up by 24%: GM was up by 252bps at 33.1%. Employee expenses grew by 17% (Ex-ESOP up by 10% YoY), while other expenses grew by 11%. EBITDA margin (Ex-ESOP) was up by 189bps to 13.9%. APAT was up by 28% to Rs 695mn. Near-term outlook: With continuous improvement in consumer sentiment and operating performance, we expect a healthy upside in the medium-term as well. Financial Summary (Rs mn) 3QFY18 3QFY17 YoY (%) 2QFY18 QoQ (%) *FY16 FY17 FY18E FY19E FY20E Net Revenue 9,382 8,792 6.7 9,597 (2.2) 18,117 39,759 41,843 48,275 55,508 EBITDA 1,165 972 19.8 1,207 (3.5) 2,095 4,902 5,354 6,682 8,073 APAT 695 544 27.9 803 (13.4) 1,145 2,924 3,308 4,296 5,356 EPS (Rs) 1.11 0.87 27.9 1.28 (13.4) 1.8 4.7 5.1 6.7 8.3 P/E (x) 68.4 53.5 48.6 37.4 30.0 EV/EBITDA (x) 38.4 32.5 30.1 23.7 19.2 Core RoCE (%) 41.3 40.4 46.1 58.6 71.2 Source: Company, HDFC sec Inst Research *FY16: Financials are for 6 months, ratios are adjusted INDUSTRY APPLIANCES CMP (as on 24 Jan 2018) Rs 251 Target Price Rs 290 Nifty 11,086 Sensex 36,162 KEY STOCK DATA Bloomberg CROMPTON IN No. of Shares (mn) 627 MCap (Rs bn)/(US$ mn) 157/2,467 6m avg traded value (Rs mn) 234 STOCK PERFORMANCE (%) 52 Week high / low Rs 295 /147 3M 6M 12M Absolute (%) 14.0 21.6 46.4 Relative (%) 3.1 9.5 14.3 SHAREHOLDING PATTERN (%) Promoters 34.38 FIs & Local MFs 14.18 FPIs 36.30 Public & Others 15.14 Source : BSE Naveen Trivedi [email protected]+91-22-6171-7324 Siddhant Chhabria [email protected]+91-22-6171-7336
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RESULTS REVIEW 3QFY18 25 JAN 2018
Crompton Greaves Consumer Electricals BUY
HDFC securities Institutional Research is also available on Bloomberg HSLB <GO>& Thomson Reuters
Structural story Crompton disappointed on revenue growth while EBITDA margin was inline. Net revenue grew by 6.7% to Rs 9.4bn while like-to-like revenue growth was at 12% (expectation was 15%). The good: lighting growth was at 23%, the bad: ECD segment posted only 7% growth and the ugly: geysers reported volume decline in a seasonally strong quarter! Crompton gained retail market share in Fans and LED lamps. Focus on premiumisation aided in posting >25% growth in premium fans and 57% in LED lamps. Premium fan contributes ~20% in total fans vs. 7% in FY15. Within 2 years of pursuing the LED business, it now contributes >70% of lighting business which is a remarkable achievement. However with Crompton’s caliber we believe it disappointed with weak growth in ECD at a time when its peers (Havells and V-Guard) reported healthy growth. Mgt. stated that they faced intense heat in geysers and domestic pumps. Mgt’s focus area remains the same, i.e. (1) Cost rationalisation (2) Premiumisation and (3) Competitive pricing. We continue to like Crompton
owing to (1) Premiumisation in fans, (2) Healthy growth in LED, (3) Brand leveraging in appliances (4) Focus on efficient distribution (ROI model) and (5) Asset-light business model. We model 27% earnings CAGR over FY18E-20E. We reiterate BUY with a TP of Rs 290, based on 35x Dec-19 EPS.
Highlights for the quarter Lighting saved the day: Fan growth was still not
inspiring, could be because of delay in restocking. The co. lost market share in geyser and pumps. The only bright spark was in lighting which clocked 23% growth, driven by strong demand for LED lamps.
EBITDA (Ex-ESOP) up by 24%: GM was up by 252bps at 33.1%. Employee expenses grew by 17% (Ex-ESOP up by 10% YoY), while other expenses grew by 11%. EBITDA margin (Ex-ESOP) was up by 189bps to 13.9%. APAT was up by 28% to Rs 695mn.
Near-term outlook: With continuous improvement in consumer sentiment and operating performance, we expect a healthy upside in the medium-term as well.
Like to like revenue growth of 12.2% vs. expectation of 15% GM expanded by 252bps driven by premiumisation Operational excellence drove strong EBITDA margin expansion
Lighting continued its great run with like-to-like growth of 23/30% in value/volume driven by robust LED demand LED continued to witness price erosion ECD like-to-like growth was 7% with fans growing faster than market however domestic pumps and geyser faced intense competition Higher LED mix in lighting resulted into 262bps expansion in EBIT margin Premiumisation of fans (>Rs 2,000 MRP) drove EBIT expansion for ECD
Growth in retail fan market was flat YTD, however Crompton grew faster than the market and continued to take share Mgt. expects the fan market to recover in the next few quarters to 6-8% growth rate In lighting, LED now contributes >70% to lighting revenues as compared to 66% in Q1FY18 On a YTD basis lighting growth has been impressive inspite in a turbulent environment EESL orders in lighting were at Rs 420mn in 3QFY18. ~ Rs 500mn of order pipeline remaining in B2B lighting segment
CROMPTON CONSUMER : RESULT REVIEW 3QFY18
Page | 5
Net Revenue Gross Margin
Source: Company, HDFC sec Inst Research Source: Company, HDFC sec Inst Research Lighting Performance ECD Performance
Source: Company, HDFC sec Inst Research Source: Company, HDFC sec Inst Research
Premiumisation, cost control initiatives and distribution expansion delivering healthy operating performance since last few quarters Ceiling fans market share is at 27% while premium fans share stands at 8-8.5% share of total market fans
-5%
0%
5%
10%
15%
20%
-
2,000
4,000
6,000
8,000
10,000
12,000
Q1F
Y17
Q2F
Y17
Q3F
Y17
Q4F
Y17
Q1F
Y18
Q2F
Y18
Q3F
Y18
Net Sales YoY Gr.(%)- RHS(Rs mn)
8%
10%
12%
14%
16%
28%
30%
32%
34%
Q3F
Y16
Q4F
Y16
Q1F
Y17
Q2F
Y17
Q3F
Y17
Q4F
Y17
Q1F
Y18
Q2F
Y18
Q3F
Y18
Gross Margin EBITDA Margin - RHS
4.0%
6.5%
9.0%
11.5%
14.0%
16.5%
-
900
1,800
2,700
3,600
Q3F
Y16
Q4F
Y16
Q1F
Y17
Q2F
Y17
Q3F
Y17
Q4F
Y17
Q1F
Y18
Q2F
Y18
Q3F
Y18
Revenues EBIT Margin - RHS(Rs mn)
10.0%
12.5%
15.0%
17.5%
20.0%
-
2,000
4,000
6,000
8,000
10,000
Q3F
Y16
Q4F
Y16
Q1F
Y17
Q2F
Y17
Q3F
Y17
Q4F
Y17
Q1F
Y18
Q2F
Y18
Q3F
Y18
Revenues EBIT Margin - RHS(Rs mn)
CROMPTON CONSUMER : RESULT REVIEW 3QFY18
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Crompton’s Lighting Performance Crompton’s Electric Consumer Performance
Source: Company, HDFC sec Inst Research Source: Company, HDFC sec Inst Research
Better product mix i.e. LED/premium fans driving strong EBIT growth for lighting/ECD segment respectively
Source: Company, HDFC sec Inst Research * FY16: Financials are for 6 months, growth is adjusted for FY16 annualised numbers Note: FY18 revenue growth is based on reported numbers (not adjusted to GST)
Balance Sheet Year End March (Rs mn) FY16 FY17 FY18E FY19E FY20E SOURCES OF FUNDS Share Capital - Equity 1,254 1,254 1,288 1,288 1,288 Reserves 1,034 4,138 6,175 8,819 12,116 Total Shareholders Funds 2,288 5,392 7,462 10,107 13,404 Long Term Debt 5,072 6,500 6,500 6,500 3,500 Short Term Debt 100 - - - - Total Debt 5,172 6,500 6,500 6,500 3,500 Net Deferred Taxes (43) (182) (182) (182) (182) Other Non-Current Liabilities 146 176 228 236 259 TOTAL SOURCES OF FUNDS 7,562 11,886 14,009 16,661 16,982 APPLICATION OF FUNDS Tangible Assets 786 821 884 960 1,051 CWIP 1 - - - - Goodwill 7,794 7,794 7,794 7,794 7,794 Other Non-Current Assets 178 186 207 242 283 Total Non-current Assets 8,759 8,801 8,886 8,997 9,128 Inventories 2,100 2,348 2,427 2,752 3,164 Debtors 4,165 5,434 5,440 6,276 7,216 Other Current Assets 563 500 526 607 698 Cash & Equivalents 900 3,885 6,349 9,054 9,384 Total Current Assets 7,728 12,167 14,742 18,689 20,462 Creditors 6,641 7,145 7,520 8,676 9,976 Other Current Liabilities 2,285 1,938 2,099 2,348 2,633 Total Current Liabilities 8,926 9,083 9,619 11,024 12,608 Net Current Assets (1,197) 3,084 5,123 7,665 7,853 TOTAL APPLICATION OF FUNDS 7,562 11,885 14,009 16,661 16,982
Source: Company, HDFC sec Inst Research * FY16: Financials are for 6 months, ratios are adjusted for FY16 annualised numbers
CROMPTON CONSUMER : RESULT REVIEW 3QFY18
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RECOMMENDATION HISTORY
Rating Definitions BUY : Where the stock is expected to deliver more than 10% returns over the next 12 month period NEUTRAL : Where the stock is expected to deliver (-)10% to 10% returns over the next 12 month period SELL : Where the stock is expected to deliver less than (-)10% returns over the next 12 month period
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