Shares of Crompton Greaves Consumer Electricals Ltd fell 4% as it announced its September quarter (Q2FY23) results last week. The stock has fallen 22% in the past one year, as opposed to the Nifty 50 index’s 2% gain.
“Demand for electrical goods hasn’t picked up since May and this continues to be a concern for investors in Crompton stock. Kitchen appliances are strong, but demand for Crompton’s electrical consumer durables and Lightning products has been weak. Also, Ebitda margins have remained weak for the last two quarters,” said Harshit Kapadia, an analyst at Elara Securities (India).
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A sharp increase in other expenses impacted Ebitda margins in the second quarter. Consolidated Ebitda margin declined 410 basis points (bps) year-on-year (YoY) and 44 bps sequentially to 11.4%. One basis point is 0.01%.
The company says the second quarter was a tough quarter due to the unfavorable base of last year and weak consumer demand due to high retail inflation.
Consolidated revenue increased nearly 23% year-on-year, aided by the amalgamation of Butterfly Gandhimati Appliances. However, standalone revenue declined 4%.
In the segment, revenue from electric consumer durables (ECD) and Lightning products was down 3% and 7%, respectively. Within ECD, the Appliances business saw a growth of 12%, however, the Fans business saw a slowdown at the end of the second quarter. Within lighting, the traditional lighting business has declined by 35%.
After the second quarter results, some analysts have cut their earnings estimates. FY23 estimated earnings per share down by 18% 8.9 reflects a soft and uncertain outlook for the first half of FY23 performance, suggests Kotak Institutional Equities’ report dated October 27. “While we expect growth to improve in the coming quarters as temporary adverse conditions ease, much depends on the health of inflation and consumer demand,” the report said.
Thus, the valuation of Crompton stock appears reasonable, although near-term bullish upside may be limited. Bloomberg data shows the stock trades at around 30 times estimated earnings for FY24. There is room for Crompton to gain market share in the fan segment after the new Bureau of Energy Efficiency norms are implemented. “As Crompton continues to expand its kitchen portfolio, managing growth with returns will remain critical given the significant competition and current growth challenges,” said a report by Nuvama Research.
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