16% revenue decline suggests similar COVID-19 impact to that of peers
– CROMPTON was all set to witness one of its strongest quarter (based on Jan-Feb’20 sales) before the onset of the COVID-19 led disruption in Mar’20, which led the sales decline across categories in 4QFY20. While management is optimistic of supply side getting back to normal as the lockdown gradually eases, it still remains cautious on the demand outlook.
– Volume growth was robust during Jan-Feb’20 (33% YoY across ECD and B2C Lighting). Primary sales have resumed from end-Apr’20, and Fans and Pumps have seen good pick-up in the South and East India in May’20.
– We have cut our FY21E/FY22E earnings estimates by 22%/11% to build in the impact caused by the COVID-19 disruption and modest demand outlook ahead. We maintain our Buy rating with TP of INR240 (prior: INR270).
Ongoing cost initiatives partly offset impact of sales decline
– Revenue declined 16% YoY to INR10.2b (16% below est.). EBITDA declined 18% YoY to INR1.4b (17% below est.) while EBITDA margin was down 40bp YoY to 13.6% (v/s est. 13.8%).
– Employee cost declined 8% YoY to INR706m.
– PBT declined 20% to INR1.34b (23% below est.). Adj. PAT was down 12% YoY to INR1b (23% below est.).
– Given the uncertain economic outlook, the CROMPTON board has deferred dividend for FY20.
– FY20: Revenue was flat at INR45b. EBITDA grew 2% YoY to INR6b. EBITDA margin improved marginally to 13.2% (v/s 13.1% in FY19). Adj. PAT grew 17% to INR4.4b as effective tax rate stood at 25.7% (v/s 33.4% in FY19).
– CFO stood at INR4.2b (v/s INR3b in FY19) owing to lower working capital.
Strong volume growth across categories in Jan-Feb’20
– 4QFY20 segmental highlights: ECD – Revenue at INR7.4b were down 14% YoY, with EBIT margins stable at 20%. Lighting – Revenue declined 19% YoY to INR2.8b, with EBIT margins at 7% (-450bp YoY).
– Robust growth in Jan-Feb’20 across categories: ECD grew 18%, while volume growth stood at 22%. Fans volume growth stood at 21%, while market share increased by 80bp YoY. Domestic pump grew 19% in volumes. Appliances grew 60% YoY in value, with Water heater growing 48% in volume and 97% in value. Mixer grinders/Air coolers grew 54%/83% in value. Lighting (ex-EESL) was up 7.5%; volume growth in LED bulbs, batons and panels was 40% and value growth was 15%. Market share in LED lamps grew by 100bp.
Valuation and view
– Even amidst the ongoing disruption, we commend CROMPTON’s efforts to further improve its leadership position in the Fans segment and its good start in the new category of Water heaters and Air coolers. CROMPTON’s strong FCF generation is under-appreciated at current valuations, in our view. We maintain our Buy rating with TP of INR240 (28x Mar’22E EPS).
