Crompton Greaves logo

A big consumer electricals player, Crompton greaves consumer electric is a market leader when it comes to residential pumps, fans and lighting segments. Their recent acquisition of Butterfly in 2022 gave them the access to experience and possibly benefit from the fast faced high growth segment of kitchen appliances.

Major positives which differentiate Crompton from its peers is that they have one of the best operating and net margins in the entire industry in which they operate in, they have pretty decent return ratios and the ability to generate free cash flow which many companies in the similar space lack.

The results/earnings of the company, Crompton Greaves Consumer Electric in the third quarter of financial year FY23 were below the estimates of many analysts as the company recorded muted performance in almost all of its business segments. As a result, the shares of the company in National and Bombay stock exchange tanked more than 10% in a single day post the announcement of results. Many analysts cut their growth projections too for the company.

Consolidated revenue growth trend

It was a shocker that rather than liquidating and freeing the company's non-star inventory by attracting customers through heavy discounting or other tactics, the company instead focused more towards selling their star-rated BLDC fans. It looks like they had a plan which probably didn't execute or work well and hence backfired as visible in their earning report.

Business of the recently acquired entity, Butterfly was impacted as there was a muted growth reported in the segments of wet grinders (sales were affected as GST on the product was increased from 5% to 18%) and mixers (up 20%) as well. Revenue from the company fell 20% year on year and 55% quarter on quarter.

The sales lighting segment were hurt because of the intense competition and pricing pressure faced in the B2C LED business from peer companies. The segment's revenue was down 20% year on year and 8% quarter on quarter. Business in the B2B segment was able to maintain some traction though.

Revenue mix

Even after reporting health gross margins at 32.5% (up 86 basis points year on year and 39 basis points quarter on quarter), EBITDA margins couldn't move up and were reported at 10.1% (down 424 basis points year on year and 131 basis points quarter on quarter) as higher investments in things like innovation, employee expenses, building brand, R&D were continued by the company resulting in more outflows. Optimization in cost and more efficient operation should help in expanding margins in the future as per the management.

Expenses of % of total income

Majorly driven by acquisition of Butterfly, the estimates for the future of the company's performance are as follows :-

Financial Snapshot

The margins of core business like ECD, lightning are expected to improve but earnings and return on equity might still be affected as a result of weak operating performance from segments covered under Butterfly.

The sales of heating appliances were impacted due to winters which were relatively warmer as compared to the past hence the revenue of the company in the ECD segment was down 7% year on year and down 4% quarter on quarter.

Revenue mix - quarterly trend

There was a continuous stiff competition in the pumps segments majorly from the unorganized sector as a result of which Crompton had to revamp its entire portfolio and take adequate steps in pricing to compete and stay above the water. If they continue to execute well, they should be able to generate some traction in the pumps business.

Strong growth in sales was seen by the company in segments like kettles and flasks.

So, what do you think about Crompton Greaves results?
Do you hold or track the company?

Let us know in the comments below!

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