Crompton Greaves Consumer Electricals Ltd Q4 FY2023 Concall Summary

Key Takeaways

• Revenue grew 27% in a tough year, but standalone Crompton grew only 8%: The consolidated number includes the first full year of Butterfly, which delivered its highest ever profit. The core business faced demand headwinds and a costly BEE fan transition.
• EBIT margin is being deliberately sacrificed for growth: Management now prioritizes absolute EBIT and volume/value growth over restoring the EBIT margin percentage, calling the decline a choice driven by stepped-up investments.
• The BEE fan transition cost hit is lingering: A ~15% cost increase was mitigated to 5-7%, but the expected pass-through to consumers did not happen in Q4. The company is not taking price increases now and the delta will persist.
• Lighting B2C is being reset after underperforming: An independent go-to-market organization has been carved out, mirroring a successful move in small appliances, with results expected in the next couple of quarters.
• What to watch next quarter: Whether the lighting B2C reset starts to show traction, any movement on passing through the residual BEE fan cost delta, and the pace of Butterfly's margin journey toward 8-9%.

The Deliberate Margin Reset

• Strategy shift: The company believes sustainable absolute EBIT that delivers growth and expands EPS is a better strategy than restoring the EBIT margin percentage. Volume and value growth is now considered more critical than the margin rate.
• Gross margin vs. EBITDA: Gross margin declines are significantly less than the EBITDA decline versus historic peak levels, indicating the EBIT drop is a choice driven by investment levels rather than structural erosion.
• Investment areas: Spending continues behind the Butterfly acquisition, brand building, R&D, the new kitchen category, and manufacturing excellence, despite external challenges.
• Butterfly margin journey: The business delivered its highest ever profit in the first full year under Crompton, moving from a pre-acquisition 5-7% EBITDA toward a steady state of 8-9%, with an opportunity to hit double digits sometime in the future. The company will not cut investments behind brand, people, and innovation to get there faster.

Kaleeswaran A: "Fundamentally, we believe volume and value growth is more critical than EBIT margin."

BEE Fan Transition: The Lingering Cost Overhang

• The cost problem: The BEE transition imposed a ~15% cost increase via the Unnati program. Value engineering (VAVE) brought that down to about 5-7%, but the company initially expected to pass a large part to consumers in Q4 itself, which did not happen.
• Pricing stance: Management is not looking at any price increases right now, given inflation and the demand outlook. The residual 4-5% cost delta is expected to remain for some more time, with a calibrated approach net of further Unnati reduction.
• Competitive outcome: Despite the headwind, the company believes its calibrated transition delivered competitively superior results versus peers, with a three-prong strategy of educating consumers on star-rated fans, mitigating cost increases, and strategic pricing.
• Market share resilience: The company maintained overall market share during the year while improving its share of premium fans, and has gained share every quarter over the previous four years.

Shantanu Khosla: "We do a conscious calibrated call on how we should transition with an objective of getting superior products into our customers, and thereby, into the hands of our consumers faster than competition."

Lighting: A B2C Reset Underway

• The underperformance: Lighting B2C value growth was flat for the year, with Q4 volume flat and value negative. The root cause was structural: the lighting sales force was part of an integrated national sales force, leading to a lack of focus.
• The fix: The company has created a completely independent go-to-market organization for B2C lighting that reports into the business and category head, not into national sales operations. A new D2C sales head was hired days before the call.
• The precedent: The same separation was executed for small appliances 12 months ago, with extremely positive results. Management expects the lighting change to start showing results in the next couple of quarters.
• Distribution gap: Numeric distribution of the lighting footprint is at least 5x to 8x lower than fans, pumps, or appliances, representing a large untapped opportunity if the go-to-market fix works.
• Strategic tilt toward B2B: The lighting business is split almost equally between B2B and B2C. The strategy has been to de-risk B2B because it is unpredictable, but the focus moving forward will be largely on the B2B side.

Shantanu Khosla: "We believe that this focus on go-to-market can make us step change distribution."

Butterfly: Integration Progress and Brand Ambition

• First full year: Butterfly delivered its highest ever profit with ₹97 crores EBITDA and 10% revenue growth, driven by de-risking e-commerce and establishing the brand in the retail channel.
• Retail pivot working: Retail grew 19% in Q4 with healthy margin improvement. The e-commerce de-risk is behind them, and growth is returning in that channel through full listings and channel-specific products.
• Market share: Market share remained almost flat across all core categories, with a marginal increase in mixer grinders.
• National brand ambition: The company aims to make Butterfly a national brand using Crompton's pan-India distribution network and Butterfly's product portfolio. Hiring is underway across sales, category marketing, R&D, and back-end manufacturing.
• Kitchen portfolio architecture: A new go-to-market strategy is being piloted to define brand architecture for the kitchen appliances portfolio, comprising Butterfly plus all domestic appliances of Crompton and large domestic appliances.

Promeet Ghosh: "Crompton's might of pan-India distribution network, along with Butterfly's product portfolio, will help us move in the direction of making Butterfly a national brand."

Category-Level Dynamics

Guidance & Commitments

Key Metrics