Further, secular industry opportunity aided by demand traction from unbranded segment, higher penetration and up-trading, augurs well for Crompton’s long-term prospects.
We view Crompton as one of the best plays in Indian FMEG, given its assorted product mix aiding growth across cycles, formidable market share, sturdy product pipeline, strong brand and innate financial strength (nil leverage, optimum wcap, robust return ratios and cash flows). Further, secular industry opportunity aided by demand traction from unbranded segment, higher penetration and up-trading, augurs well for Crompton’s long-term prospects. Initiate at ‘buy’.
Appliances (ECD) account for 75% of Crompton’s revenue mix in FY20, Lighting for ~25% (Exh 3). Crompton is the market leader in fans (est. 25% share in FY20), #2 player in pumps (~15%), #1 in residential pumps (~28%). Also, the company has cemented its position as #3 in Lighting – LED (~9%) and #4 in geysers (~11%).
Importantly, market shares in key categories have improved (Exh 19-23). Majority business is B2C-centric (resumption better than B2B). Refer Exh 52 for Org-chart, Exh 51 for SWOT analysis.
As cited by the company, cumulative industry size across fans, pumps, appliances and lighting stands at +Rs 400 billion (Exh 2), with medium-term growth at 8-11% over FY19-24E. Key growth drivers: Higher urbanisation and disposable income, penetration in Tier-II/III/IV cities, rural electrification and premiumisation. Near-term demand catalyst could be festive season in India.
Crompton’s four-pronged strategy, product development, new launches — ~44% of sales emanate from new products. Recent launches in fans (Aura Fluidic, SilentPro, Energion), pumps (Ultima, Mini Crest), lighting (Super Lumen, Anti-Bac); brand excellence, recall — recall improved by 10-40% over three years driven by focused marketing; Cost reduction — Op-margin up by +170bps to 13.3% over FY16-20, led by gross margins (+220bps); 4) Distribution, go-to-market (GTM) strategy — pan-India reach with 3,500+ distributors, 100,000+ retailers, 500+ service centres.
Crompton exhibits a robust B/S, with nil leverage (net D/E at 0.09x as of March 20), optimum working capital (< 30 days), high return ratios (RoCE at +30% and RoE at +24% over FY21-23e), strong C/F (avg FCFF at Rs 4.5 billion per annum over FY21-23) and cash pile (avg at Rs 5.4 billion p.a).