Crompton Greaves Consumer Electricals Ltd Q4 FY2024 Concall Summary

Key Takeaways

• Record quarter built on a tough base: ECD revenue grew ~14% YoY against the inflated Q4 FY23 base that preceded the BEE transition, with fans posting their highest-ever quarterly sales and 13% YoY growth.
• Margins stepped up sharply despite investment: ECD EBITDA margin reached ~12.5%, up from ~10% in the prior three quarters, even as A&P spend rose 49% YoY and a ₹14 cr EPR charge was absorbed.
• Butterfly corrections are largely done, but the business is still loss-making: Revenue of ₹166 cr came with an EBITDA loss of ₹20 cr; channel mix optimization and policy alignment are substantially complete, and management expects momentum to pick up from Q2.
• Premiumization is accelerating: Premium saliency improved 300 bps overall, with ceiling fans up 380 bps and large domestic appliances up 410 bps; one year ago Crompton sold one in five fans as premium, now it is more than one in four.
• What to watch next quarter: Whether Butterfly revenue and profitability actually begin moving up from Q2, the trajectory of fan margins after the price increase under consideration, and any stabilization in B2C lighting price erosion.

ECD Performance & Margin Recovery

• Fans delivered volume-led growth: Strong double-digit volume growth in both Q4 and the full year, sustained for three consecutive quarters, with market share gains in ceiling fans and within premium ceiling fans.
• Gross margin rebuilt sequentially: Fan gross margins improved from ~23% in Q1 to ~25% in Q4, driven by cost-saving initiatives and catch-up price increases that began in September, since the BEE transition cost increase was never initially absorbed.
• ECD margin climbed 400 bps from trough to peak: ECD margin moved from 12.7% in Q1 to 16.7% in Q4, achieved despite stepped-up investment and a ₹14 cr EPR cost absent last year.
• Price increases were sequential, not front-loaded: The margin recovery came from measured, staggered price actions through the year rather than a single large increase at the start.
• One more price hike is under consideration: Management confirmed on the call that another increase is being evaluated.
• Competitor behavior is diverging: Some peers are being aggressive to chase growth, which is translating into their margins moving in the opposite direction from Crompton's; Crompton is continuing to increase prices and still seeing growth.

Kaleeswaran A.: "We are an organization that stands for growth. That's what we want to focus upon... But at the same point of time, unit economics is also going to be guarded against. And if it means that there is a price increase that needs to take to protect the margins consistently, that would happen."

Butterfly Turnaround

• Revenue corrections are largely complete: The business took tough calls to correct sales in institution and corporate channels where brand equity was being diluted, for example, Butterfly gas stoves sold through oil marketing companies or alongside garments in Reliance Retail.
• Channel mix optimization is substantially done: Policy alignment between Crompton and Butterfly has been largely completed, with only one or two residual items possibly remaining.
• The business is still loss-making: Q4 revenue was ₹166 cr with an EBITDA loss of ₹20 cr, which includes a ₹1.2 cr EPR charge and one-off reorganization costs from surrendering a manufacturing facility.
• Operating leverage will amplify the recovery: Butterfly has much higher operating leverage than Crompton, so as revenue returns, there will be a disproportionate impact on margin.
• Pricing actions have already started: Increases have been taken in both trade and ecommerce channels.
• Near-term margin goal is recovery to prior levels: In the long run, Butterfly should be a double-digit margin business; in the near term, the target is to get back to the category EBIT margin the business operated at one to two years ago, then expand from there.
• New leadership is in place: Sweta Sagar joined as Chief Business Officer for Butterfly approximately 1.5 months before the call.

Kaleeswaran A.: "By and large the revenue corrections are done. We now need to focus how do we get the revenue growth back."

Premiumization & Portfolio Mix

• Premium saliency jumped 300 bps overall: Ceiling fans improved 380 bps, large domestic appliances 410 bps; the shift from one-in-five to more than one-in-four premium fans happened in a single year.
• Seasonality distorts the premium mix ratio: Q4 and Q1 are the largest fan quarters, led by ceiling fans; TPW saliency goes up in those quarters, making the premium percentage lower but absolute premium sales higher. When demand is summer-driven, functionality is the primary driver; later in the year, upgrade-driven demand sells more premium fans.
• Air coolers grew 33% on new model launches.
• Small domestic appliances grew 35% and have consistently grown close to 30% quarter after quarter; the business is now a fairly reasonable size, though the exact figure was not disclosed.
• Large kitchen appliances generated ₹61 cr in revenue with an EBITDA loss of ₹25 cr per annum, which is factored in as part of the investing journey; a new manufacturing line has been set up at the Baroda facility.
• Solar pumps are a new growth vector: Fresh orders of ₹87 cr were secured in Q4, with total empanelment of ~₹122 cr for the year; a strong pipeline of ₹85+ cr in orders remains to be executed apart from the ₹35 cr already executed in Q4.

Lighting: B2B Rises, B2C Waits

• Overall lighting growth was flat, but degrowth has been stanched: The business has two distinct segments with roughly similar margins.
• B2B showed robust growth: Driven by focus on enterprise projects and government infrastructure investments such as Coastal Road, Jewar Airport, and metro projects; Crompton has built a very robust enterprise business over the last three quarters.
• B2C is still degrown: Price erosion in the lamp segment is the culprit, driven by Chinese manufacturers lowering kit prices because they have problems selling elsewhere. Conventional lamps have been entirely stopped in the B2C portfolio.
• The strategy is to protect margins during erosion: Management's approach is not to fritter away margins while price erosion plays out, and to invest in categories like ceiling lights where early positive signs are visible.

Promeet Ghosh: "Will the price erosion continue forever? Obviously not. The price erosion is happening because the Chinese for their part are trying to lower their kits that they sell to India, because they have problems in selling in the rest of the world. Now, that can't go on forever."

Channel & Investment Strategy

• A&P spend has structurally stepped up: At 3.14% of revenue versus 2.5% last year, up ~49%; management indicated levels are likely to be maintained as a percentage of revenue.
• Alternate channels now account for ~20% of overall sales: Ecommerce, MOR, and rural channels together; ecommerce alone recorded >₹100 cr again, and rural grew 23%.
• General trade remains the most profitable channel and is also growing: All channels are profitable, and the difference between them is not significantly different, per management.
• Exports crossed ₹100 cr for the first time.
• R&D expenditure was ₹71 cr, with 85 design registrations, 17 patent applications, and 10 patents granted.
• Market share gains are visible: Share has increased in ceiling fans and in premium fans within ceiling; in geysers, Crompton has become the #1 player in ecommerce; in lighting, early positive signs are seen in categories like ceiling lights where the company never advertised before.

Kaleeswaran A.: "Fundamentally, we are a company that is led by unit economics. That is extremely critical for us when we decide to play in any channel. So all our channels are profitable and the difference is not significantly different between one to another."

Demand Environment & Structural Tailwinds

• Summer demand is strong and positive: Management continues to see fairly strong demand from summer, with reasonable momentum helped by consumer demand uptick.
• Global warming is a structural tailwind: The world is getting warmer, requiring more cooling devices for longer periods; for a vast majority of the country, air conditioners will never be an option, making fans, personal cooling devices, air coolers, and geysers long-term beneficiaries.
• New housing construction is a demand driver: New builds are going up across eight cities in India, which will impact demand.
• Kitchen appliance demand is moderating post-COVID: The post-COVID spike is probably towards the end of playing out, but kitchen is a fundamental requirement so demand is expected to come back well.
• The BEE transition base effect is now fully lapped: Crompton stopped production of non-BEE fans during the quarter preceding 1 January 2023 and did not stuff the channel, which made Q4 FY23 a very strong quarter; Q4 FY24 broke many of the records set by that quarter.

Promeet Ghosh: "In our case, beneficiary. So, it's a very interesting space in our view is fans."

Guidance & Commitments

Key Metrics