Crompton Greaves rated ‘Buy’ with TP of Rs 280

By: | Published: September 6, 2018 2:14 AM

Crompton conducted a successful test-run of its go-to-market (GTM) strategy in select states such as Maharashtra, Gujarat and Chhattisgarh, where results are encouraging with higher growth for those dealers.

Crompton, Crompton  greavesCrompton is yet to realise a full-season benefit of its Air 360 model.

Crompton conducted a successful test-run of its go-to-market (GTM) strategy in select states such as Maharashtra, Gujarat and Chhattisgarh, where results are encouraging with higher growth for those dealers. The GTM strategy is aimed at: a) reducing TAT for new SKU ramp-up taking market feedback; and b) move from a target-based approach to need/ demand-based replenishment approach with uniform pan-India pricing. In our view, this is practiced by many leading players and is a natural progression given gradual consolidation in logistics and distribution post-GST.

Management highlighted the drop in LED prices and the entry of new players might continue to impact the overall sector profitability in the near term, adding that it faced the brunt in the last month of Q1FY19. Management also pointed out a stronger performance ahead citing cost efficiencies that are driving its better-than-industry profitability. Crompton has come a long way in lighting (LED), emerging as the second-largest player with a 10% market share after Philips.

Crompton is yet to realise a full-season benefit of its Air 360 model. Besides, it is working on one–two new models, which would be launched soon and are likely to sustain a high share of premium fans over the coming years.

New management has largely delivered on its strategies of better-than-industry growth and bottom line growth being higher than top line growth. However, we believe the company’s performance will be largely bottom-line centric given its strong capability in managing cost. Product innovation and category expansion though remain the key value drivers given huge potential for leveraging the Crompton brand. Maintain ‘Buy/SO’ with a target price of `280 (11% premium to sector valuation).

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