Crompton Greaves Consumer Electricals Ltd Q1 FY2023 Concall Summary

Key Takeaways

• Strong headline growth off a COVID base: Standalone revenue grew 54% YoY, with Appliances nearly doubling and Lighting up 61%, though the prior-year quarter was heavily COVID-depressed.
• Structural margin improved ~100 bps YoY to 12% EBITDA despite doubling ad spends and investing in the new built-in kitchen appliances launch; exit margins were back at FY2022 levels.
• Butterfly integration is off to a clean start: The acquired business hit an all-time high quarterly revenue of ₹253 Crores with a 10.2% EBITDA margin, a level management calls sustainable.
• Commodity tailwind is visible but delayed: Raw material prices began cooling in late May, but the main P&L benefit is expected only from Q2 onward due to higher-priced inventory.
• What to watch next quarter: Whether the commodity benefit flows through to margins as guided, the pace of pumps recovery after 20–25% cumulative price hikes, and early traction in the built-in kitchen rollout.

Topline & Segment Performance

• ECD (52% YoY growth): Fans gained 2 percentage points of market share on a rolling 12-month basis, the only company to gain share quarter-on-quarter in both premium and overall fans over two years. Pumps was the weak spot, hit by 20–25% cumulative price increases and a GST hike from 12% to 18%.
• Appliances (98% YoY growth): Industry-leading growth driven by air coolers, where volume rose 209% and value 218%, as this was the first full summer season after two COVID-wiped years and the company deployed its delayed air cooler program.
• Lighting (61% YoY growth): B2C LED grew 82% led by battens (volume +90%) and panels/downlighters (volume +64%). B2B grew 48% as businesses recovered, though the earlier EESL government contribution has vanished and is not expected to return.
• Alternate channels contributed 12% of overall sales, up from 9% last year; rural and L&I business combined grew 166% YoY.
• Volume demand has not yet seen a sharp uptick ignoring the base period; management believes a genuine volume recovery is still a couple of quarters away, though the trend is slightly better and not worsening.

Shantanu Khosla: "Personally, I think that is still a couple of quarters away because it takes some time for it to come back. So it is not getting worse. If anything, it is getting slightly better trend-wise, but is it the kind of volume growth, which we have traditionally had, not yet."

Margins & Costs

• Structural EBITDA margin improved ~100 bps YoY to 12%, absorbing a doubling of ad spends to ₹40 Crores and upfront costs for the built-in kitchen appliances launch. Exit margins in June were back at FY2022 levels.
• Employee costs jumped sharply due to two one-off factors: a lower variable pay provision in the base period that the Board later topped up, and annual increments given in April this year versus July last year when COVID had delayed them. The steady-state run rate is expected at ₹100–105 Crores per quarter for the rest of the year.
• Commodity prices started cooling from the latter half of May, but the main benefit will flow in Q2 because Q1 sales were fulfilled from higher-priced inventory. Some easing began to show toward the very end of Q1.
• Lighting structural margins are "pretty much intact," with the EBIT dip explained by incremental ad spend (~1 percentage point) and ECL provisions from EESL payment slowdowns.

Mathew Job: "I am very confident that in terms of lighting structural margins, they are pretty much intact."

Butterfly Acquisition

• Q1 performance: Revenue of ₹253 Crores (86% YoY growth), an all-time high for the first quarter. EBITDA grew 3.5x to ₹26 Crores with a margin of 10.2% versus 5.3% a year ago. Growth was broad-based across categories and channels.
• Integration approach: Management's first priority was understanding the business and maintaining continuity, since Butterfly was "not a business in trouble" but was "proceeding quite healthily." Over the next few quarters, the company will work through synergy details and identify the right legal structure, with no Board decisions taken yet.
• Channel strategy: Butterfly over-indexes on e-commerce; the plan is to keep that while aggressively scaling retail. In Q1, the company added ~1,000 new retail outlets and ~100 direct channel partners. Management sees low chances of significant churn in general trade distribution.
• Synergy potential: The Crompton Unnati program has already identified a "reasonable amount" of potential cost savings in Butterfly to improve margin and generate funds for expansion.

Mathew Job: "The management believes that the growth in revenue and margins is being witnessed on lines that we had forecast and expected, and we do see this level of margin as a going level which is sustainable."

Built-in Kitchen Appliances Entry

• Market entry: Crompton launched a comprehensive range of chimneys, built-in ovens, built-in microwaves, and dishwashers. The addressable market for chimneys and hobs alone is ₹2,200 Crores, growing at 10%. The stated objective is to become a top-three player within three years, implying at least 10% market share.
• Rollout plan: Already present in 7 of 10 target city clusters; full rollout to 10 clusters expected within a couple of months. By May/June next year, the target is presence in the top 300 cities covering 90%+ of the potential.
• Distribution: 17 Crompton Signature Studios (premium exclusive brand outlets) set up so far, with a target of 40–50 in the next three months across the top 10 cities. All are franchise-operated, requiring no significant capex.
• Margin strategy: Gross margins are already at target levels; the company will not sacrifice gross margin to buy share. Pricing is competitive and on par with leaders in most cases, with superior features. Investments will happen below the gross margin line for marketing and distribution; the focus shifts to EBITDA margin only after the number-three position is achieved.
• Sourcing: The business is currently 100% sourced from outside with no backend capex. Localization may be considered once the business reaches a going stage, but no significant capital is involved for the foreseeable future.

Shantanu Khosla: "The focus is on making sure that the gross margins are at target level. Obviously, as we are launching this, we will continue to invest below gross margin, but we will not sacrifice gross margin because that needs to be at target levels."

Pumps & Lighting: Headwinds and Recovery Path

• Pumps: A longer-than-normal slowdown was compounded by 20–25% price increases across the industry over 18 months and a GST rate hike from 12% to 18%. This is the only category where volume growth was hit. Management expects a combination of pricing adjustments and new SKU introductions to get pumps back on a growth path in the next few quarters.
• Lighting B2B: The government EESL contribution has "completely vanished" and is not expected to return. Non-government B2B trade demand is more or less back to pre-COVID levels, and overall B2B is expected to return to pre-COVID levels in another couple of quarters if conditions hold. B2C will be the growth engine for lighting for at least the next few quarters.
• Lighting reach: Reach numbers have started improving in the last two quarters after nearly two years of stagnation, which management expects to translate into market share gains in the next couple of quarters.
• GST impact: The GST rate increase on both pumps and lighting (from 12% to 18%) adds a new element to balance going forward.

Guidance & Commitments

Key Metrics