Crompton Greaves Consumer Electricals Limited (CROMPTON) Earnings Call Transcript & Summary

So thanks, Vishal. On behalf of ICICI Securities, we welcome you all to Q1 FY '27 Results Conference Call of Crompton Greaves Consumer Electricals Limited. We have with us today senior management represented by Mr. Promeet Ghosh, Managing Director and Chief Executive Officer; Mr. Kaleeswaran Arunachalam, Chief Financial Officer; Mr. Sachin Phartiyal, Business Head, Home Electricals; Mr. Shaleen Nayak, Business Head, Lighting, Solar Rooftops and Wires; Ms. Swetha Sagar, Chief Business Officer, Butterfly Gandhimathi Appliances; Mr. Ruchir Jain, Head, Investor Relations, Corporate Strategy, FP&A; Mr. Rishabh Jain, Deputy General Manager, Investor Relations; and Mr. Anand Kumar, Head of Pumps and Kitchen Appliances. Now I hand over the call to Promeet sir for his initial comments on the quarterly performance, and then we will open the floor for question-and-answer session. Thanks, and over to you, Promeet, sir.

Yes. Thank you, everyone. Can you hear me properly? Okay. I'm going to take that as yes.

Yes, sir.

Good evening, everyone. Welcome to our Q1 FY '27 earnings call. Thank you to the team of ICICI Securities for hosting this call. This has been an eventful quarter for us from additions in our senior leadership to progress on our brand-related efforts to innovation-led growth and recognition of industry-first innovation. Joining me, as was announced earlier today after a while is Sachin Phartiyal. He joins us back as the Head of Home Electricals after a brief stint outside the organization. As many of you will remember, in his earlier tenure, he played a key role in building our fans and appliances portfolio. Along with Sachin, we also added Anuj Lall as the Head of our Integrated Supply Chain. Anuj, prior to this worked -- served as Executive Director and Vice President, Integrated Supply Chain at Whirlpool India. Both of them bring valuable experience as well as a fresh perspective, further strengthening our senior management team. As you also know, many of the faces around the table are familiar, but some of their roles have changed. Rajat now looks after sales. Shaleen, of course, looks after lighting, wires as well as solar rooftops. Swetha, earlier the Chief Business Officer for Butterfly alone, now looks after both Butterfly, Large Kitchen Appliances as well as our [ Riot ] brand. Anand has taken over the role of Head of our Kitchen Appliances business. Of course, Kaleesh is doing exactly the same thing that he's always been doing, right? So yes, let me now get on with the quarterly performance. Crompton delivered a double-digit growth across all its business segments, driven by strong execution, successful product launches and steady seasonal demand. This quarter began, as you know, with an uncertain note because of global events with commodities facing cost and availability pressure. Through this volatility, we held on to our very disciplined approach as a leader, making timely pricing interventions and lean working capital management, combined with operating leverage and focused cost initiatives. This has ensured that profits grew ahead of revenue. However, sustained leadership and consistent performance, as you are well aware, requires a disciplined approach across tough market conditions. And I believe that is exactly what we demonstrated under very volatile conditions. And this is the discipline that has enabled us to continue to deliver strong growth with margin protection and high ROCE. Despite adverse market conditions, indeed adverse and volatile market conditions, at a consolidated level, revenue grew 11.8% Y-on-Y to INR 2,235 crores and EBITDA was INR 224 crores, and it grew 14.2% Y-o-Y with margins expanding by 20 basis points, reaching 10%. Profit after tax grew 15.2% to INR 143 crores with net profits -- net profit margin at 6.4%. Now moving on to segmental performance. ECD business delivered 10.6% Y-o-Y revenue growth. Over the last several quarters, as many of you are aware, BLDC has been a key focus area. That is beginning to show results in the market. Our BLDC portfolio grew approximately 45% this quarter, resulting from the focused portfolio interventions that we have made in the last 4 quarters. During this quarter, we launched 5 new BLDC fans, further strengthening our portfolio. We continue to remain market leaders in ceiling fans with market share gains during the quarter. Pumps delivered strong performance across various subcategories with market share gains. Domestic appliances grew double digits, led by water heaters, which performed very well in both trade as well as the Ecom channel. As you are aware, over the last several quarters, we have been steadily gaining leadership positions in our water heater business in general trade. Water heaters, I'm glad to announce, now commands a clear leadership in volume terms in general trade. As I've said earlier, this was indeed a very choppy quarter and choppy, volatile and unpredictable quarter, marked by pricing as well as availability disruptions. But through this period, we made pricing intervention behaving like the leaders that we are and combined with these interventions and operating leverage ensured that our EBIT margins grew ahead of revenue at 12.1% with a 20 basis points gain in margins at 13.5% margin. Most of the supply constraints, which arose out of this volatility were largely addressed by the end of the quarter, which now has led to a strong start in Q2. Lighting continued the strong momentum that it has gathered over the last several quarters. This is something that I've been calling out for some time. There is a material change in trajectory in our Lighting business and this business continues to demonstrate this. The Lighting business continues to demonstrate that it is -- it has a strong momentum. Revenue grew by 15.4% Y-o-Y to INR 269 crores, driven by growth in both the B2B as well as the B2C segments. Margins in B2C segment continued to expand, but B2B witnessed a contraction in margins because of precontracted prices. We reported an EBIT margin in Lighting of 12% for the segment. Butterfly delivered strong results with revenue up 14% to INR 214 crores, driven by strong momentum across all channels and market share gains in mixer grinders, pressure cookers and glass tops. Excluding the internal sales that Butterfly has made to Crompton of mixer grinders, which we've talked about in the past, Butterfly delivered an 18% growth. EBIT at Butterfly grew by 19.5% Y-o-Y with margins at 4.2%. Across segments, as I've already said, we have taken pricing interventions. These range from high single digits to low double digits. These have covered approximately 80% of the inflationary pressures that we faced. I would also like to highlight the significant progress that our brand transformation journey has made. As shared previously, we undertook an extensive usage and attitude consumer study, the insights from which have shaped a comprehensive look at our brand architecture and has helped shape a broader refresh of the Crompton brand across our product lines. I'm happy to share that by the end of this month, you will see the first visible outcomes of this work stream. We believe these efforts will set the tone for Crompton's next phase of brand journey. Over the next 3 to 4 months, you may expect to see a series of brand launch events showcasing the evolution and the future trajectory of the Crompton brand. Now many of you may be already aware that there is an event -- brand launch event that is planned on 17th of this month -- 18th of this month for which invites to the relevant parties has already gone out. There is actually a further capital market investor event, which is on the 20th of this month. I expect during that capital market event to be able to give investors insight into the dramatic change that is being under -- that Crompton has been undergoing for the last 3-odd years. So you should -- you'll be able to get a real peak of what that is, in fact, delivering in Crompton. So we'll come to that when we see some of you on the 20th here. I just want to reiterate that we have kept to our brief disciplined pricing approach, premiumization while leveraging our operating scale and strong execution across categories. Moving ahead, as we see, as I said earlier, Q2 has started very well, and we are continuing to witness now that many of the volatility conditions have settled down, if not subsided, we are now beginning to see the benefits of the actions that we have taken. I think it's fair to say that the pricing actions that we took, the market is well accepted. They have now flown into the market quite well. So we are quite optimistic about where things are evolving currently. With that, I will pause, and we'll take questions. Depending on what the question is, I may answer that. Kaleeswaran is there really...

Yes. We can start the question queue. Those participants have any questions, please raise your hand. First question is from Aditya Bhartia.

My first question is on volume growth. Given that you spoke about high single-digit to low double-digit kind of price increase, is it fair to assume that volume growth in ECD category would have been quite modest, if any? And if that is the case, then what could have contributed to it given that we had a favorable base?

Like I said earlier, Aditya, that this quarter, we were impacted. Now we've done a very lean ship, as you know, right? Sometimes if the prices go up and there are supply disruptions that can have an adverse effect. But of course, over a period of time, what we found that if you keep a lean -- if you run a lean ship over a period of time, your ROCEs are much better and your cash flows are much better. So we've kept to that principle. I would say that because of supply disruptions, we did lose some sales, order of magnitude, maybe INR 200 crores, maybe a little bit more, it depends. But fact of the matter is that, yes, look, when you have supply disruptions, you might -- you have to ensure that given the current availability of supply, you have to maximize your revenue. So we've kind of taken that tack and the outcome is what it is that you can see.

Understood. Understood. And the supply disruptions would have been largely on the fans portfolio or something else?

Actually, we had some supply disruptions in other areas as well because if it is only pricing disruptions, then that was a different story. In this case, there was a lack of -- clear lack of visibility on supply of commodities and of various input materials as well. So we did have supply disruptions earlier. So for instance, I spoke about Lighting, right? In Lighting, we had a little bit. But when you're doing a B2B business, there can be -- you are -- obviously, there's a forward-looking contract that you've gotten into. And that sometimes can -- if the pricing disruptions are very large, not all of it can be recouped by pricing intervention. So yes, I'd say there was a disruption in more than one area and not only fans. But the good news is that we worked very hard. So while keeping to our principles, we worked very hard over the quarter and certainly towards the end of the quarter, many of these issues pretty much settled down and that has enabled us to start the next quarter very well.

Sure, Promeet. And Promeet, you mentioned about roughly 80% of cost increases having now been passed on. But despite that, we have actually seen a bit of margin expansion. Does that mean that we had some low-cost inventory, which kind of cushioned the impact in this particular quarter? And in Q2, costs are sequentially going to go up, and we may require some more price hikes to kind of maintain these margins?

Actually, quite -- as I said earlier, we maintain -- we maintain a lean ship across the year. So the impact of low-cost inventory and actually some of the others probably have had a lot more of that, which is one-off, right? So there is -- I wouldn't say the contribution of low-cost inventory for us was very material. As you are aware, what we do in all our situations is that we have a very active cost management program as well. So we do, do that so that you can't only work on the product pricing. Even the pricing that we passed on at least it was not our sense, perhaps because some of our peers were working from a low-cost inventory that they may have built up. So we didn't see the same kind of pricing actions that others did. But yes, we did pass on. So yes, I don't know if that answers all your questions, but that should give you a sense of where we were.

Next, we have a question from Mr. Dhruv Jain.

First question is on the expenses side. So I mean, we've seen some bit of a cut in A&P, and we've also seen subsequent rise in other expenses to the tune of about 15%. So just wanted to understand, at least on the A&P part, what's the sustainable number going forward and if this is transitory? That's my first question.

Yes. So Dhruv, as I said earlier, this is a very active shares for brand Crompton, right? So it's not really something that we've cut back in 1 quarter and that's not something that we -- as we've said before, A&P is something that we want to consistently make. So you will see the activity -- a lot of activity on brand Crompton going forward, which we believe will go a long way in refreshing the way that we are positioned, the [ TG ] that we are able to cater to, et cetera. So on a generic basis, I'd say the kind of percentage to sales over the year should be similar to the one that we had last year.

And my second question is on the solar rooftop portfolio. So if I'm not wrong, I think last quarter, you had a INR 500 crores -- close to INR 500 crores kind of order book. I just want to get a sense that what's the number here? How has been the execution in this vertical so far? And I mean, how should we really think about this number really going forward in the next, say, 1 or 2 years?

Yes. So solar rooftop business, in particular, has been in a ramp-up mode last quarter. So basically getting all our ducks in place in so far as the execution is concerned is what I'd say. And frankly, as you are aware, out of that INR 500 crores, INR 450 crores is an order book that we expect to execute over the 6, 8 months, right? So I'd say that this has been a year in which we really ramped up our execution capability. I mean this is like going from 0 to INR 500 crores in a very short period of time. So that's -- the order book pretty much remains in place. The good news is that in solar rooftops, we also have started garnering orders on the B2C side, right? So this is, of course, the entire idea of the B2G business was that it gives us the scale both in solar rooftops and solar pumps and helps us sharply ramp up execution and that we will also use to step up our B2C presence. And this was the quarter where the revenues from B2C have also started rolling in. That, of course, is a business where it's a consumer business and very high ROCE business, negative working capital business, right? So yes, I'd say those are the 2 things that happened. This quarter and the next quarter is where I would expect -- I mean, huge bulk of that order book to get executed. And the government...

Next, we have a question from Mr. Achal Lohade.

First question I have, if you look at -- we had a low base of last year given the summer season we had. And given the recovery we kind of saw in the month of June, how do you see this? How do you tally this? Is really the consumption that weak or it's only specific to the category? And are you seeing any green shoots now?

Actually, I think it's -- like I said, I think the consumption is pretty decent. We are seeing both the -- what happens in our business is that initially, when you take price increases, there's a sticker shock, right? So this guy comes into the store, he looks at the product and he says, guys, I just came 2 weeks ago and the prices is now 10% higher or 15% higher, right? And he says, I don't want to buy it just now. Maybe it will come down, right? So that -- having said that, the nature of our business is that most of these are only partially discretionary, right? So you really don't have an option. So I think the pricing has a delaying impact but not a demand suppression impact. Certainly, what we are seeing is that demand remains robust. And our -- yes, we've had -- we started the quarter a little bit impacted by the supply disruptions that we were facing. But as our demand -- as our supply disruptions have subsided and market has become much more predictable, we are seeing robust growth is what I'd say.

Yes. In fact, just to add to it, if you look at it category after category segments Butterfly starts with, we reported a stand-alone Butterfly business reporting 18% growth, excluding Crompton. Lighting, probably one of our best ever quarter with about 15% growth. ECD on the back of INR 200 crores of supply shortage that we talked about has still delivered INR 12 crores, where acceleration of revenue on solar rooftop is [indiscernible]. So overall, we see that on the back of pricing action that we have taken across categories, coupled with the supply challenges, business is moving in the right direction and consumption is also positive.

Pricing, when you have supply disruption, you do have to be -- I mean you want to be proactive in pricing. Even in Crompton SDA business, you are aware that we have an SDA business, right, which over the last 6 quarters has been one of the fastest-growing businesses. We took material pricing action there. And as a consequence, the margins of that business despite cost increases actually done extremely well. It has gone up multifold. I'm not at liberty to disclose the number to you, but the margins in that business -- profit margins in that business has gone up multifold. So you kind of got to look at that holistic picture. To short point, it's not -- it wasn't -- it's not a demand issue.

Got it. Secondly, if you could talk about the CapEx, how do you see it for the current year and next year, particularly given the foray into new categories, would there be any capital allocated for that as well?

I have said before, we have a pretty disciplined approach to capital allocation, right? So I've said before, let's just understand we have so far always had a good mix of in-house manufacturing as well as outsourced manufacturing. With this in-house manufacturing, we have consistently increased our capacity with very low investments, right? So if you remember, 2 years ago, we announced that we had expanded the manufacturing capacity at our Baddi plant with an investment. It has -- the capacity has gone up by 50%, and we had made an investment of all of INR 50 lakhs, right? We have similarly expanded and optimized capacity at other locations. So -- and when we've gotten into wires, this is a question that I keep getting asked -- before we got into wires, we worked quite hard on figuring out what the supply chain for wires would be. Today, as of now, we are not putting up a plant for manufacturing wires. So it's not really a capital allocation issue. Having said this, we do have a plan to take our manufacturing capability to another level, right? Now you are aware that we have announced in the past that we are planning over the next 2, 3 years to implement a greenfield manufacturing location with the next-generation manufacturing capability, right? And as I've told you in the past, that manufacturing plant, which will also include a large warehousing unit, will spend about INR 350 crores. Otherwise, you should expect to see whatever our regular manufacturing CapEx trends should hold.

Next, we have a question from Mr. [ Parag Khare ].

Sir, if we look at the copper prices, which is a major input side for us, it has been continuously going up. I mean it's -- even after correction, it has gone up and then it's at an all-time high. Do you think we may need future pricing actions in the future as well to support our margins?

I'd say, like I said earlier, we have been quite disciplined in passing on pricing increase, right? Having said that, the way that -- at least I -- we have not seen most of our competitors or large bulk of our competitors, frankly, follow through in the same manner. Perhaps they were benefiting from a significant low-cost inventory, but that will wear off, right? The price -- the approach that we have is both working inside as well as working outside, right? So every price increase that we have in commodity, we work on both sides. As of now, do we see a significant in the state of pricing increases being necessary? The answer is no, partly because we've been first to the market and the price increases that we did take have now, we believe, largely settled into the market. At least today, I have not seen a sharp set of price increases that are still necessary for us because of the combination of the 2 or actually 3 price increases, cost measures as well as our operating leverage. I think all of those should help.

Sure. And the second question is you talked about INR 200 crores of shortfall because of the supply disruptions. Could you elaborate which category where we faced these challenges? Is it fan, air coolers?

I think we answered this earlier. It's largely fans and largely the ECD category is where we had the shortage, Parag.

Also, ECD also. I would say even Lighting. Frankly, Lighting was our fastest-growing segment, but it would have grown even faster. I assume.

Supply side, is it because of the commodity inflation or there are some other reasons also to it?

See, fundamentally, as you would know, Crompton as an organization has always been working on a sharp net working capital management, and we have been an organization that works on negative working capital. So as we ended Q4, we never carry a base inventory into it. And as the war opened up, our initial challenge assumptions were around availability shouldn't be a concern. It's only pricing. But as we discovered, the commodities also took time, and we did not have the base inventory to cover it. And that took us time. And by around June end, it got stabilized and July, we are back to normal. So in spite of those challenges is what we have delivered is what we were trying to explain across categories, the challenges we had on availability.

Good luck for Q2.

Next, we have a question from Siddhartha Bera.

Sir, first, a quick follow-up on the previous question of sales which we lost. Given how will be the channel inventory in that scenario? And would we have scope to cover up this shortfall in the coming quarters? So that will be the first question. And the second is, if you can share the segment-wise growth like fans, pumps and small appliances, how the growth has been in the quarter?

Siddhartha, as you are aware, we don't provide the segment-wise results or rather the subsegment results. Segment-wise results have been provided between ECD, Lighting and Butterfly. In so far as the channel inventory is concerned, that goes with the demand pattern. We never had too much of a channel stock earlier also. We don't think that's a concern right now.

It's a concern for the -- it's not a particular area of concern for this quarter. Particularly because we started addressing this towards the last part of the last quarter. So this is kind of rear. Yes, now we are looking at some of these in the rear view mirror.

Next, we have question from Mr. Umang Mehta.

First question, again on fans. Given the disruption is now behind and given that the category has seen double-digit kind of price hikes and the base of last year is okay, would we -- would 15% be a fair expectation for rest of the year in terms of how fans should grow?

Yes. As you would know, we don't provide forward guidance in terms of how do we go about it. But yes, from a portfolio perspective, we have already seen the kind of growth that we have seen in BLDC, which we talked about in the range of about 45%. A lot of work that had to be done within the BLDC category on product and placement has just started. So the journey of BLDC for us, I would say, in many sense, is probably beginning, and there is a long, long legroom available for us to grow from that perspective. Similarly, premium fans, which is on the induction side is also moving positively as we get into Q2, Q3 onwards. That should provide impetus for the growth. As we have always been talking about regulatory challenge or the changes that is happening through BEE, we see Crompton is positively poised to consolidate the industry as the entry segment and gain market share, considering that it may not be competitively possible for people to absorb the incremental cost and pass back. So overall, fans as a category, we do believe we are well poised. Already some of the symptoms are visible for us in strong BLDC growth and strong double-digit growth in some of our other subsegments within fans and the momentum should continue in both mid and long run.