Buy Crompton Gr. Con; target of Rs 530: Motilal Oswal

Motilal Oswal's research report on Crompton Gr. Con

Crompton Gr Con (CROMPTON)'s topline stood in line with our estimates, with the strong off-take in northern and western India in June'21 compensating for muted growth in eastern and southern India. However, the two-year revenue CAGR stood at -12%, below -1% CAGR for Havells (on a like-to-like basis when comparing the ECD and Lighting segments). While gross margins stood stable YoY, the EBITDA margin declined as the management continued its spending on advertisements, R&D, e-commerce, and other strategic areas (in line with 3Q/4QFY21). With commodity costs up 10% in 1QFY22, CROMPTON addressed this via a) product premiumization, b) cost savings (INR380m savings in 1QFY22), and c) price hikes of ~5%. While the commodity cost inflation has cooled off a bit, it remains elevated.

Outlook

We maintain our Buy rating and roll forward our valuation on Jun'23 basis, with TP of INR530/share (45x Jun'23E EPS). Our target multiple discount v/s Havells stands at ~10%, down from 20-30% earlier.