Crompton Greaves Consumer Electricals Ltd Q3 FY2024 Concall Summary

Key Takeaways

• Crompton 2.0 delivering, Butterfly lagging: Core ECD categories outperformed peers, with fans, pumps and appliances all growing robustly, while Butterfly's turnaround is taking longer than expected and remains a work in progress.
• ECD revenue grew 19%, driven by premiumisation: Growth was broad-based and led by BLDC fans, TPW fans, pumps and domestic appliances, not by a low base from BEE norm transitions.
• Margins dipped on deliberate brand investment: ECD margins fell ~350 bps YoY, but 80-85% of that was a ₹35 cr incremental marketing spend behind brands, framed as investment rather than structural erosion.
• Butterfly revenue declined on institutional reset: A 70%+ drop in episodic institutional/corporate sales drove the topline fall, while core retail and e-commerce channels grew; the channel rebalancing is expected to take a couple more quarters.
• What to watch next quarter: Whether Butterfly's channel correction completes and revenue stabilises, the pace of lighting's B2B order execution, and if the three fan and pump price increases hold in the market.

Crompton 2.0: Core Portfolio Performance

• Fans outperformed on premium push: 11% growth was driven by BLDC and TPW (table, pedestal, wall) categories, not by the BEE rating transition in the value segment. The company is now the second-largest BLDC player, having built that presence from nothing about two years ago.
• Pumps back to robust growth: Both residential and agricultural pumps grew, with the latter gaining share steadily. An initial solar pump order for Haryana has been implemented and paid for, with further orders received.
• Lighting arrested its decline: After notable de-growth, corrective measures including personnel changes delivered very moderate growth this quarter. B2C was broadly flat, B2B returned to a reasonable growth trajectory, and large orders were secured from Mumbai Coastal Road, Ahmedabad and Chennai municipal corporations.
• Appliances grew significantly ahead of 20%: Large domestic appliances (geysers, coolers) and small domestic appliances both contributed. The company is now a top-three player in geysers and number one in e-commerce for the category.
• Channel breadth improved: General trade grew across all four regions, while alternate channels (rural, e-commerce, MFIs) grew strongly, with e-commerce within alternate channels doubling.
• Market share gains were broad: Share increased in fans (led by premium, for three quarters running), pumps (residential and agricultural), kitchen appliances and geysers. Lighting held share.

Promeet Ghosh: "Six months after driving Crompton 2.0, I have to say I am delighted to say that in our core categories, in every category we have performed better than our peers and this includes categories where we have had some difficulties in the past."

Butterfly: The Work in Progress

• Revenue decline is a deliberate institutional reset: The topline drop was driven by a 70%+ de-growth in institutional and corporate sales, which management considers episodic and not a core area going forward. Core retail (general trade) and e-commerce channels grew.
• Channel rebalancing is in phase two: Phase one, moving from a Flipkart-led price-ecommerce model to a broad-based Flipkart plus Amazon brand-led engagement, is complete. Phase two involves balancing corporate and government oil marketing company business to reduce volatility.
• Gross margin erosion is an operating leverage problem: Butterfly runs 90% in-house manufacturing, so when volumes fall, margins correct sharply. Management expects margins to improve sharply when volumes return.
• Operational integration with Crompton is on track: Manufacturing of kitchen appliances, starting with mixer grinders, is being moved from outsourced vendors to Butterfly's in-house facilities to address the operating leverage issue and improve margins.
• Recovery timeline is a couple of quarters away: Management expects channel correction to complete and the business to start moving directionally toward desired performance in about two quarters.
• Long-term ambition remains intact: Butterfly is seen as a 5-10 year business, with the aim to make it a pan-India brand beyond the South, moving from a value-led to a lifestyle brand positioning. Advertising spends are being maintained despite profitability pressure.

Promeet Ghosh: "Butterfly is a strong brand in kitchen appliances, very strong brand in kitchen appliances and a very strong brand in the South... it's taking longer than we anticipated, but we do believe that it will show in the performance of Butterfly in the quarters to come and realize what the potential of"

Margin Structure & Investment Logic

• ECD margin decline is overwhelmingly brand investment: ECD margins fell ~350 bps YoY, of which 80-85% was a ₹35 cr incremental marketing spend in Q3. Management frames this as investment behind brands, not structural margin erosion.
• Crompton 2.0 prioritises absolute profit over margin percentage: The strategy is to invest 30% more in A&P to build brand strength for future growth, accepting a lower margin percentage in the near term to drive absolute profit growth.
• Butterfly's margin pressure is volume-linked, not structural: The gross margin decline is driven by operating leverage in a 90% in-house manufacturing model. A minimum revenue threshold is needed to drive a steady 7-8% EBITDA margin.
• Cost levers remain untapped: Management identified indirect cost reduction opportunities with benefits expected from next year onwards. There is also headroom to improve gross margins in fans after three price increases, and operating leverage will kick in as the business scales over the next 2-3 years.
• Revenue growth is expected to fund investments: Management expects double-digit revenue growth as a portfolio, which should help fund the elevated brand spending.

Kaleeswaran A.: "If you look at the margin erosion that has happened in the industry in the last one year, it has been due to largely the price and cost challenges for the competitors, whereas for us it is largely due to investments made behind the brands and categories that we operate, which we expect to pay dividends beyond the current quarter and years to come."

Manufacturing & Supply Chain Strategy

• In-sourcing is accelerating for value-added products: The company is stepping up in-house manufacturing of fans, a process started 7-12 months ago, and moving kitchen appliance manufacturing from outsourced vendors to Butterfly's facilities. Current facilities operate at low capacity utilisation, providing operating leverage upside.
• Lighting manufacturing is moving up the value curve: The Baroda facility is underutilised. For commodity products, the company will outsource; for value-added products, it will control the entire value chain in-house.
• Owning design and critical parts of the value chain is seen as a big differentiator in the years and quarters to come. The in-sourcing versus outsourcing mix will vary by category.
• BIS and EPR compliance substantially met: The BIS standard deadline has passed and the company has almost entirely met it by transitioning manufacturing facilities. Extended Producer Responsibility compliance is also being worked on.
• Three price increases taken in fans and pumps: Two in the last two weeks and one the day before the call, to pass on BEE-related cost increases. Management sees further headroom in fan gross margins after these increases.

Competitive Positioning & Sustainability

• Sustainability barriers, not entry barriers, define the industry: Management argues that while anyone can enter consumer durables, sustaining and continuing to do well is difficult. The company's brand investments are aimed at building that sustainability.
• Premiumisation is the moat in fans: The focus on BLDC, Domex (domestic exhaust) and TPW fans is paying off, with the company gaining share in premium segments for three consecutive quarters. BEE norms from January last year translated into materially higher costs, which the company passed on moderately.
• Lighting faces pricing pressure but volume growth is significant: LED lamps and battens continue to see pricing pressure, but significant volume growth was achieved. The CFL business is being discontinued, which affects revenue comparisons.
• Exclusive business outlets are the future go-to-market for premium products: The LDA business is already sold through exclusive outlets, and this channel is seen as important for all premium products in the months and quarters to come.

Promeet Ghosh: "In consumer durables, there are no entry barriers, there are only sustainability barriers. People can enter. It's not easy for people to sustain and continue to do well."

Guidance & Commitments

Key Metrics