YES Securities' research report on Crompton Consumer
Crompton’s numbers are a beat on all fronts. Revenue outperformance was led by faster revival in its B2C business in June, wherein it managed to recover to 90% of last year’s level. ECD margins improved yoy due to sharp reduction in A&P spend (-95% yoy) and various cost saving measures taken by the company. B2C lighting segment registered 9% volume growth. Company took 3-4% price hike in May which led to gross margin expansion in June (highest levels in recent past). However, B2B segment remained weak due to lower government and institutional offtake. Secondary sales pickup was similar to primary sales and overall demand revival extended to July. Net cash improved from Rs2.3bn at the end of FY20 to Rs4.6bn led by strong operating cashflows. Crompton’s strong performance on the margin front gives of confidence on the various cost saving tailwinds available with the company. We believe the company’s asset light model and strong product portfolio would aid in the company delivering industry leading margins. We marginally increase our FY21 margin estimate post the strong Q1 performance and various cost saving initiatives implemented. We continue to remain positive on Crompton on the back of improved product mix, cost optimization exercises and good response to its new product categories.
We believe valuations are attractive at 32.1x FY22E P/E for a company with market leadership in its segments, strong free cash flows and high return ratios. We maintain our Buy rating for a target price of Rs277, valuing the company at 36x FY22 P/E.
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