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Last Updated : Jul 29, 2019 01:39 PM IST | Source: Moneycontrol.com

Buy Crompton Consumer; target of Rs 304: HDFC Securities

HDFC Securities is bullish on Crompton Consumer has recommended buy rating on the stock with a target price of Rs 304 in its research report dated July 25, 2019.

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HDFC Securities' research report on Crompton Consumer


Net revenues was in-line and clocked 12% growth (20% in 1QFY19, 7% in 4QFY19) which is the fastest in the last 4 qtrs. GTM initiatives are now accelerating ECD’s performance. Management has not witnessed a slowdown impact in its categories, rather seeing a pickup in construction activities. ECD grew at a robust pace of 16% (23% in 1QFY19, 10% in 4QFY19) owing to harsh summer and new launches. Growth was broad-based with fans/pumps/appliances growing at 15/15/40%. Healthy growth in fans was led by (1) ~100bps market share gains, (2) Premiumisation (premium fans grew by 24%) and (3) New launches like Aura (5 year warranty). We expect mid-teen growth in ECD over FY20-FY21. Lighting declined by 2% (vs. exp of +6%) owing to (1) Price erosion of 10% in B2C panels (flat in bulbs) and 5-7% in B2B lighting, (2) 21% decline in conventional lighting (20% mix) and (3) Impact on B2B orders due to elections. Co is driving growth by (1) Distribution expansion for B-C, (2) New product launches (anti-bacterial lamp, 5-star rated bulbs) and (3) Strengthening core for B-B (investments in technology and sales force). Management acknowledged that they are behind the curve w.r.t. investments in B2B lighting (vs. Havells). GM expanded by 27bps (inline) to 32.6% (+180bps 1QFY19, -64bps 4QFY19) led by richer mix. Employee/other expenses were up by 14/10%. EBITDAM expanded by 36bps to 14.2% (exp 14.8%). ECD EBIT margin expanded by 77bps to 20.3% (exp 19.6%) led by premiumisation and oplev. Lighting EBIT margin declined by 157/630bps YoY/QoQ to 5.1% (exp 10.5%) despite 100bps GM expansion. Higher A&P spend (+300bps), investment in B2B and provisions for bad debts (250bps) impacted lighting margins.


Outlook


Crompton’s 1Q performance was a mixed bag with beat in ECD while miss on lighting. Co’s success in ECD with market share gains in fans and higher aggression in appliances was encouraging. Lighting disappoints with legacy issues (conventional lighting) and investments in B2B. We cut EPS by 2-3% over FY20-21E. We value co at 35x on Jun-21 EPS, arriving at a TP of Rs 304.


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First Published on Jul 29, 2019 01:39 pm
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