Motilal Oswal is bullish on Crompton Gr. Con has recommended buy rating on the stock with a target price of Rs 270 in its research report dated July 26, 2019.
Motilal Oswal's research report on Crompton Gr. Con
Earnings miss estimates marginally: 1QFY20 revenue grew 12% YoY to INR13.5b (in line with our est. of INR13.7b), while EBITDA was up 15% YoY to INR1.9b (5% below our est. of INR2b). Reported EBITDA margin improved 30bp YoY to 14.2% (lower than our est. of 14.7%), while other income came in higher than our expectation at INR173m. Thus, adj. PAT at INR1.2b was 6% below our expectation of INR1.3b. Lighting segment performance disappoints: Lighting segment revenue declined 2% YoY to INR2.7b (our est. INR3b; +12% YoY). Revenue was impacted by (a) price erosion witnessed in the LED segment, (b) decline in the conventional lighting segment (21% YoY decline), and (c) B2B sales affected by elections. EBIT declined 25% YoY to INR141m (our est. INR307m) on account of 170bp margin erosion to 5.1% (our est. 10%). Margin impact was on account of (a) 300bp YoY higher ad spends during the quarter, (b) 200-300bp impact due to incremental provision for ECL, and (c) investment in the B2B business. Management expects Lighting margins to revert to double-digits on sustainable basis gradually.
We like CROMPTON for its strong product portfolio, established brand, market leadership, wide distribution network, robust RoE/RoCE profile and healthy free cash flow generating business model. We maintain our Buy rating with TP of INR270 (30x Mar'21 EPS).
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