Crompton Greaves Consumer may underperform on demand concerns

The stock of Crompton Greaves Consumer Electricals has shed about 12 per cent since the start of the month due to a muted near-term outlook.

Demand slowdown across segments and pre-buying in cooling products in the June quarter are expected to weigh on revenues going ahead.

In addition to pre-buying in the preceding quarter, demand conditions are soft on account of lower consumer spending due to inflationary conditions, weakness in rural demand and the fact that Q2 remains a soft quarter after a strong summer.

At the start of the festival season, Onam saw soft demand conditions in Kerala.

After broad-based growth in the June quarter, demand is expected to recover in the second half of FY25.

Nuvama Research believes that the fans' category growth remains on the expected trajectory.

However, with the expectation of BEE 2.0 ratings, there could be a temporary impact on the fans' portfolio, given product rejig, channels and prices.

Antique Stock Broking too expects Crompton s operational performance to witness an improvement from FY25 onwards.

The demand recovery is on the back of normal monsoon and expectations of rural demand recovery.

This, according to analysts led by Amit Shah of the brokerage, will help the company deliver 27 per cent earnings growth over FY24 27 against a 10 per cent drop over FY21 24.

It has a  buy  rating on the stock with a target price of Rs 503.

While the company is focussing on growing the lighting products portfolio, it is looking at improving the performance of the Butterfly portfolio from FY26 onwards with an operating profit margin of 7-8 per cent, say analysts led by Achal Lohade of the brokerage.

Though the stock has corrected given the softness in demand, Nuvama Research believes that its long-term story is intact, given consistent product launches, price hikes, and channel realignment to aid growth.

Barring the Butterfly portfolio, most of Crompton s segments reported strong growth in the June quarter.

The company posted a 14 percent growth at the consolidated level led by the electrical consumer durables which reported a 21 per cent jump.

We had maintained that with the strong summer season demand behind, we expect revenue growth momentum to normalise to 10-12 per cent Y-o-Y.

Stable commodity and lower ad spend in a non-seasonal quarter are likely to support margins, said Siddhartha Bera and Kapil Singh of Nomura Research.

The company expects its base business to grow at 10-12 per cent with new business contributing an incremental 200-300 basis points.

On the profitability front, the company has guided for 200 basis points expansion over the next four to five years on the back of operating leverage and a better product mix.

Nomura Research expects margins to improve from 11 per cent in FY25 to 11.8 per cent in FY27, led by operating leverage and price hikes.

This is likely to drive a 21 per cent earnings growth over FY25-27, says the brokerage with a target price of Rs 498.

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