Crompton Greaves Consumer Electricals Ltd Q2 FY2025 Concall Summary

Key Takeaways

• Fifth straight quarter of double-digit revenue growth, broad-based across appliances and pumps even in an off-season quarter, with lighting showing a material business-mix evolution.
• Butterfly turnaround is substantively done on channel correction, with EBIT margins improving 380 bps sequentially to 8.9%; the focus now shifts to arresting revenue decline and funding brand reinvestment.
• Fans delivered 5% growth on consistent bite-sized price increases, with the large part of that pricing action now complete; further margin levers rest on premium mix and the Unnati cost program.
• Lighting margins improved QoQ despite much higher A&P spends, as the battens-and-bulbs share fell from ~70% to ~50%, replaced by higher-value ceiling, outdoor and decorative products.
• What to watch next quarter: Whether Butterfly revenue decline actually arrests as guided, the pace of lighting’s H2 step-up from its NPD pipeline, and any demand scenario change in fans.

Topline & Segment Performance

• Fans: 5% revenue growth, partially volume and partially price; bite-sized 1.5%-2% increases taken every quarter since November last year. Management expects moderate growth going forward, with no big demand-scenario change anticipated for the rest of the year.
• Pumps: Robust growth across solar and residential pumps, though weather disturbances and a delayed agricultural season created headwinds. Solar pumps have a strong pipeline and the company has refined its bidding strategy to avoid random participation, focusing on Haryana and Maharashtra where most wins have occurred.
• Appliances: Broad-based growth with water heaters, room heaters and air coolers growing even in the off-season. Mixer grinders had a solid run supported by new launches and channel expansion.
• Lighting: 6% growth this quarter, industry-leading when adjusting for the absence of conventional product sales in the base quarter. Growth is driven entirely by non-conventional products; ceiling and outdoor categories improved significantly after new product launches.
• Large Kitchen Appliances: Revenue of ₹19 crores; the business is growing and reducing EBITDA losses.

Ghosh: "battens and bulbs, which accounted for a share of business in the previous quarter in close to about 70%, now account for about 50%, which should tell you how materially the business mix in our lighting business has evolved over the last several quarters."

Butterfly Turnaround

• Channel correction complete: Management states the business is "substantively done with the journey" of channel correction; the issues that needed solving have been solved.
• Margin recovery delivered: EBIT margins improved 380 bps sequentially to 8.9%, driven by pricing actions, price laddering, stronger management of trade spends, process intervention, and operating cost reduction, including a reduction in people cost to align manpower with business size.
• Revenue stabilization next: The company is now looking to arrest the revenue decline; any further decline is expected to be marginal. The approach has been "brand first," keeping brand and consumer at the centre for channel strategy, pricing, value chain mapping and operating costs.
• Self-funding reinvestment: Money generated from the steady margin will fund brand refresh, repositioning and NPD investment for Butterfly; over time, operating leverage and further margin improvement should follow.
• Mixer grinder leadership: Crompton and Butterfly combined hold what management believes is the market leadership position in mixer grinders, with back-end integration through Butterfly manufacturing and independent front-end channels.

Ghosh: "if you want to scramble an egg, you've got to crack a few eggs. And I think the business has done that very well that they have worked on the price laddering, they've worked on the terms of trade."

Margins & Cost Levers

• Material margins improved to 31.9% from 30.1% in Q2 FY24.
• EBIT margin improved 60 bps despite a 70% increase in A&P spends, driven largely by the ECD business.
• Fans margin levers: Improvement has come from regular price increases, stepped-up NPD and premium mix, though management says the share of premium fans is at a similar level and did not quantify it. Further levers are improving mix toward the premium-fans ambition and the Unnati cost program as a continuous driver.
• Pricing cycle largely done: The large part of pricing action in fans is complete unless commodity or other reasons require further action.
• BIS transitions are now a recurring feature of the business across products, requiring planning and carrying cost implications; Crompton works to pass on costs or optimize internally and believes it has its arms around the process while some peers have lagged.

Ghosh: "Remember, we are Crompton, right? So if the government says 4th of September, it means 4th of September, every product, whether it is coming out of our own manufacturing facilities or out of some outsourced manufacturing facility."

Competitive Dynamics & Pricing

• Fans pricing leadership: Crompton has taken consistent bite-sized price increases ahead of competition, which management says has shown a consistent lag in pricing actions. The company is watchful for competitor reactions but believes such situations do not sustainably change the business.
• Market share: In residential pumps, management "imagines" they probably gained market share incrementally but not dramatically; no specific market growth figure or quantified share change was provided. In solar pumps, the company is growing quite fast.
• BIS-driven share gains: Management deflected on whether BIS transitions delivered market share gains, calling it "tough to say" and dependent on government inspection enforcement.

Ghosh: "These situations come and go, so you got to be watchful. I can imagine that our peers have also been seeing us grow consistently with the kind of strategy, both on taking price increases as well as industry leading growth. So, sometimes that can have some reaction, but these kinds of stuff don't sustainably change the business."

Product & Innovation Pipeline

• 20 products launched in Q2 with meaningful NPD contribution to sales; the company has stopped disclosing NPD share by product segment.
• Fans: Premium induction models (Avancer Swirl, Santos, Aura2-4 Blade) launched toward the later end of the quarter and are already contributing to sales; NPD sales are expected to materially improve going forward. BLDC in-house manufacturing is being scaled for more control and enhanced quality.
• Lighting: The NPD pipeline already came into play substantively in Q1; more is expected in H2, with these profitable products selling well. Decorative panels are now the single largest segment in lighting.
• Patents: Two more patents were granted this quarter.
• R&D investment: The aim is to further invest beyond the current ~₹100 crores per annum to bring more meaningful products.

Guidance & Commitments

Key Metrics