Crompton Greaves Consumer Electricals Ltd Q2 FY2024 Concall Summary

Key Takeaways

• Moderate demand, margin squeeze: Consolidated revenue grew 5% YoY, held back by Butterfly’s 16% decline, while EBITDA margins contracted 160 bps on BEE-related fan cost increases and brand investments.
• Premiumisation is the bright spot: Premium fans grew 30%+ YoY and now account for ~28% of the fan portfolio, while appliances delivered 17% growth, led by water heaters crossing 10 lakh units sold.
• BEE transition still a drag: The regulatory shift to star-rated fans raised input costs that have not been fully passed on; one 1-1.5% price increase was taken in September, with more likely needed.
• Butterfly merger called off, synergies stay on: The amalgamation failed the minority vote, but management insists the operational integration track continues, targeting 7-10% cost reduction on Butterfly’s ~₹800 crore addressable cost base.
• What to watch next quarter: Whether festive demand materialises as expected, the pace and success of further fan price increases, and any margin recovery in ECD as BEE costs are passed through.

Demand Environment

• Consumer demand still moderate: Management described the environment as challenging, with discretionary purchases softer than anticipated due to inflationary pressures and lower consumer confidence, though an uptick was visible from September onward.
• Festive shift hurt Butterfly: Butterfly’s 16% YoY revenue decline was partly attributed to the festive season shifting into Q3 and a one-off corporate sale in the base quarter; retail and modern trade channels continued to grow despite the slowdown.
• E-commerce doubled: The e-commerce channel nearly doubled versus the same quarter last year, crossing ₹100 crore per quarter, and management hopes the momentum sustains.
• GT channel steady: General trade is working in line with the market, with no significant fill-in or stocking happening.

Promeet Ghosh: “Frankly, I do not think anybody in the market quite understands why this may be exactly so.”

Fans: Premiumisation vs. BEE Margin Drag

• Premium segment surged: Premium fans grew over 30% YoY, lifting premium saliency to about 28%, up 250 bps YoY. Crompton now claims the largest range of premium BLDC fans.
• TPW fans outpacing the category: The high-speed segment led growth, supported by laddering actions and new launches that boosted premium presence.
• BEE transition raised costs structurally: The shift to star-rated fans from 1 January introduced incremental input costs that have not been fully passed on, compressing ECD margins. Management clarified this is a structural product-cost shift, not a channel mix issue.
• Price action started, more likely: A 1-1.5% price increase was taken across the portfolio in September; management indicated one or two more rounds may be needed, depending on festive demand.
• In-housing for cost control: Crompton began manufacturing the sub-economy fan segment in-house, a strategic move to improve cost structures and step up capacity utilisation of its own plants. The in-housing journey will expand over the next few quarters.

Promeet Ghosh: “I can’t say a lot of our competitors followed, but we took pricing increases, showing our intent on protecting margins in the last quarter and we will see how that goes.”

Appliances & Built-in Kitchen: Growth Bets

• Appliances grew 17% YoY: Both large and small domestic appliances contributed, with kitchen appliances propelled by mixer grinders (new 750-watt model) and the kettle category doubling.
• Water heaters hit a milestone: The category sold over 10 lakh units, its highest ever, translating to a 10%+ market share.
• Large kitchen appliances scaling: Revenue run rate climbed to ₹5 crore per month from ₹2 crore previously, driven by channel expansion and a material increase in exclusive brand outlets. The 75th signature store was opened during the quarter.
• Built-in appliances still in investment mode: The business is being incubated with upfront investments that will keep it loss-making for a few more quarters before scale drives profitability. Product portfolio refreshes and new sub-categories are in the pipeline.

Butterfly: Merger Off, Synergies On

• Amalgamation withdrawn: The scheme received three-fourths of equity shareholder votes but failed the majority-of-minority test. Crompton will continue as the 75% controlling shareholder.
• Operational integration continues: Management was explicit that the legal track ending does not derail cost and revenue synergy capture.
• Cost synergy quantified: Butterfly has an addressable cost base of ~₹800 crore. Crompton sees 7-10% cost reduction potential across warehousing, logistics and after-sales service, with benefits starting to evolve as this fiscal closes and moving into early next fiscal.

Kaleeswaran A.: “What Butterfly gave us an opportunity is to look at... about say Rs. 800 crores sitting in there... We think Crompton and Butterfly coming together in this area, there is a good headroom for us to look at 7%, 8%, 10% cost reduction on that base, which would start evolving as we close this fiscal and move into early next fiscal.”

Pumps & Lighting: Mixed Signals

• Pumps delivered strong growth: Agri sector grew 17% and residential submersibles grew 20% YoY. Quality improvement actions and a focus on panel sales significantly improved the attachment ratio for panels. A new brand architecture was deployed, adding Shield and Smart series variants.
• Lighting B2C remains tough: Industry-level price erosion kept competition taut, though EBIT margins improved 250 bps on cost optimisation and product mix.
• B2B lighting showing early recovery: Demand was flattish, marking early signs of stabilisation. A new sales structure was implemented from 1 September to strengthen go-to-market.

Margins & Profitability

• Consolidated margin decline: EBITDA margins fell 160 bps YoY, partly from lower material margins (31.3%) and partly from higher investments in brand and capability building. PAT declined 13% excluding a one-off tax adjustment.
• ECD margin pressure is structural, not channel-driven: The decline stems from the BEE-mandated product-cost increase for star-rated fans, not from any shift in channel mix.
• Butterfly EBITDA at 8.2%: Margins reflected ongoing investments in people capabilities and brand building.
• Growth over margin expansion: Management prioritises profit growth over near-term margin expansion, stating structural unit economics will not be sacrificed, but declined to provide EBIT margin guidance.

Kaleeswaran A.: “We do not want to get into a near-term EBIT margin guidance. As we talked about, we are conscious of the fact that we need to grow the business and deliver profit growth rather than profitability expansion.”

Guidance & Commitments

Key Metrics