Crompton Greaves Consumer Electricals Limited (CROMPTON) Earnings Call Transcript

Welcome to FY '27 earnings call of Crompton Greaves Consumer Electricals Limited hosted by Ambit. Before we start, Crompton would like to point out that some of the statements made in today's call may be forward-looking in nature, and a disclaimer to that effect has been included in the earnings presentation shared with you earlier. Kindly note that this call is meant for investors and analysts only. If there are representatives from the media, they are requested to kindly drop off this call immediately. Today, from the management side, we have with us Mr. Promeet Ghosh, Managing Director and Chief Executive Officer; Mr. Kaleeswaran Arunachalam, Chief Financial Officer; Mr. Sachin Fortia, Business Head Home Electricals, Mr. Shalin Nair, Business Head, Lighting, Solar [indiscernible]; Mr. Anand Kumar, Business Head, Pumps and Kitchen Appliances, Mr. Rajat Chopra, Global Sales and Service Head; Ms. Shweta Sagar, Chief Business Officer; Butterfly Gandhimathi; and Mr. Rui Chen, Head Investor Relations and Corporate Strategy. [Operator Instructions] Now I invite Mr. Promeet Ghosh to take us through the highlights of the quarter, post which we'll open up for Q&A. Thank you, and over to you, Mr. Gosh.

Thank you, everyone. Thank you, Dhruv, and good evening, everyone. Welcome to the Crompton Grieves Q2 FY '27 earnings call for this time. We've also already uploaded the investor deck. So you would have had some detailed understanding of what we are doing, but nevertheless, I'll try to give you color as a part of this call. Also thank you to the team at Ambit for hosting this call. My team here is joining me. Their names have already been introduced by group, so I'm not going to it again. Very happy to share that Crompton's momentum of strong revenue growth and its profit growth continues to strengthen. This is the third quarter of double-digit revenue growth and is accompanied by excellent profit growth. This progress has been driven by sustained brand building, relentless focus on innovation and excellence in execution. As a reflection of this transformation in August 2026, we launched Crompton's refreshed brand identity, featuring a new monogram Sapphire with a new tag and a distinctive sonic identity. Underpinning this evolution is our innovation agenda, anchored in three strategic vectors, design-led innovation, technology forward and smart and connected. By combining the vectors across business moves, we are continually developing and delivering industry-first products that translate into patents, awards and most importantly, differentiated customer value. Now coming to execution to begin with, that this might be something that may be at the back of your mind, the supply chain disruptions, which impacted us in Q1 are behind us now. We have appropriately stepped up inventory levels days of inventory, which were low going into Q1, as you will recall, have now normalized to similar levels as they were 1 year ago. Moving to our quarterly performance, the benefits of our efforts in repositioning the business are clearly visible. Strong [indiscernible] endeavored robust double-digit growth across all our business segments in Q2, driven by sharp and focused execution and meaningfully differentiated product launches, some of which I think you can see in the investor deck, amidst a challenging macro environment. Our consolidated Q2 performance firmly validates the trajectory that we are on. Revenue grew by an impressive 18.2% Y-o-Y to INR 2,263 crores. EBITDA delivered INR 205 crores, surging 24.1% Y-o-Y with margins expanding 40 basis points to 9% compared to a year ago. Operating leverage and Unnati program drove the bottom line growth in a tough macroeconomic environment with respect to commodities. PAT, PBT, excluding exceptional items, grew by 36.2%. We had an exceptional item of INR 20 crores, as some of you will recall, in Q2 FY '26, which was towards Baroda plant restructuring. This led to PAT growing at 65% ahead of PBT. PAT margins expanded 160 basis points. This is not strictly comparable. The PBT number, excluding exceptionals is what is compared. While we are very optimistic about our structural growth, we, of course, remain vigilant regarding macroeconomic headwinds. The industry is currently facing commodity cost pressures and unpredictable geopolitical developments. We have and are continuing to address these through discipline combination of strategic price increases, consistent execution of Unnati cost savings, and these are accompanying the benefits of operating leverage which are showing in our business. As far as overall channel performance is concerned, general trade and rural trade, which are areas of particular strength of Crompton both delivered double-digit growth. E-commerce, however, was subdued on the back of efforts to reposition our go-to-market in the e-commerce channel to improve channel profitability. You may recall that a similar exercise has been undertaken in Butterfly some quarters ago and is helping us handsomely in that business today. Now, turning to segment level performance. Our category leadership continues to deepen across our portfolio. In ECD, we delivered stellar 19.4% Y-o-Y growth with EBIT margins improving Y-o-Y to 11.6%. This is a 30.7% growth over the previous year. Fans delivered double-digit growth this quarter. Our BLDC Fans continue the strong momentum, especially in general trade with a growth of 40%, aided by focused portfolio interventions and improved reach us, our conventional pumps business which includes residential, agri and specialty pumps delivered double-digit growth. Solar pumps witnessed a slowdown as order inflow from Kusum 1.1, which is nearing completion [indiscernible]. We are aware that this will pick up in the next quarter. with GOI having announced Kusum 2.0, we expect the business to ramp up accordingly in coming quarters. Solar pumps importantly, continues to support our agri conventional agri expansion, widening our distribution and our portfolio range. This is aiding a strong trajectory in our aegis appliance. Large domestic appliances also grew at double digits, driven largely by water heaters. We continue to gain market share in our Water Heaters business during this quarter. Small Domestic Appliances also continues its momentum and grow yet again in excess of 20% this quarter, led by air fryers, induction cooktops and mixer, grinders. The consistent improvement in top line in SDA is now translating into disproportionate growth in profitability. As previously announced, we are restructuring our LKA business. As a part of the restructuring, going forward, both LKA and Rhion are being led by Shweta Sagar, the Chief Business Officer of Butterfly, Moreover, Rhion and MKA will leverage the broader Butterfly ecosystem. We expect this to materially reduce the overall cost structure and drive profitability in this segment. New businesses. Wires and Solar Rooftop continued to build strong on-ground moment. We launched our Wires business in South India in Q1 FY '27. And based on positive early traction, we have now extended it to Punjab, Delhi, NCR and Gujarat, in the previous quarter. Our execution of Solar Pump is also stepping up strongly. We have executed more than 50% of our order book with the AP government. The business to consumer and commercial and industrial business of Solar Rooftop has also commenced in 6 states, and we are in the early stages of building this aspect of the business up. Lighting. Sustained performance with 14.3% Y-o-Y growth to INR 298 crores. This has been driven by ceiling lights, and our outdoor range in B2C. This is something that I have been repeatedly calling out quarter-over-quarter. This is still the case here. Alongside this Industrial and indoor commercial segments in B2B are driving growth in B2B area. Both these segments have delivered that is to say industrial and Indoor Commercial segments have delivered strong double-digit growth this quarter. EBITDA stood at 12.9% in lighting, this is fully disclosed as a over. It is lower than it was last year, largely due to the B2B business being impacted by recontracted orders. quarterly. In Butterfly, mid-teens growth has sustained with 15.9% Y-o-Y growth. This is after excluding what was an in-house sale of mixer grinder, which is there at the pace last year. This quarter is also marked with sustained revival across core categories in Butterfly as well as the retail sales channel. While, the salience of cooktops has increased in butterfly, a large bump of the growth continues to be led by share gain in core categories. This is sustainable growth and high-quality growth as well as improvements in the share of premium portfolio in the sales of Butterfly. I am very happy to also report that our emphasis on developing international business is also beginning to bear fruit. Exports grew at more than 70% this quarter, and of course, recorded the highest ever quarterly revenues. We expect that the momentum in this channel will continue to [indiscernible] and it is our belief that International presents a significant opportunity for the company over the next couple of years. The evaluation of greenfield manufacturing plant is in advanced stages. With this, we expect to raise our manufacturing capabilities in fans appliances and wires. Looking ahead, having delivered consistent double-digit revenue and profit growth for the past 3 quarters on the back of various interventions in improving the quality of revenues and investing for the long term, we believe we are very are on track for our medium-term guidance. We are ending the second half of the year with tremendous momentum, a leaner cost structure and a brand that is resonating deeply with consumers. We look forward to continuing to update you on our progress. Thank you.

[Operator Instructions] So the first question we'll take is from Aditya Bhartia.

If you can just introduce yourself, that will be good.

This is Aditya Bhartia from Investec. My first question is on on RM inflation and the kind of price hikes that may be further required in third quarter and beyond to kind of take care of the way RM costs have continued to go up. If you could kind of throw some light on how much of cost increases would have already been passed on? And what level of price increases may be for the required and how the near-term margin outlook is looking like?

Aditya, as you have correctly noted, the RM pricing teams have been quite sharp in our business. We have said this before, and I'll say it again, as leaders in this business, we have taken the in passing on pricing increases. But as I look at the kind of price increases that we've done over the last 6 months, in various businesses, our price increases have been between order of magnitude 15%, 16%. I don't want to get to specifics, but order of magnitude, most of our businesses outside of [indiscernible], is a bit lower, obviously, lighting is coming through a period of deflation. I'm sorry, we certainly having to inflate prices. So that's a little bit different. But automated in various businesses, you can see between 11% and 15% is the [indiscernible] price increases that we have taken. We continue to be vigilant on this front. I would say that while we've heard of some of our competitors taking price increases or expressing the interest, intent to take price increases some -- not all of them always seem to rectify, but be that as it may. We have gone ahead and taking most of these price increases. I would say about this is something that is continuing to build, and we will, as appropriate, pass on price increases as we go ahead. About 80% of the cost increases have been passed on, part of this has to be dealt with the cost optimization, which, as I've noted earlier, we have a very rigorous program called Unnati. So both -- I think the margins in this company will be a factor of price increases of operating leverage, which we have been received and of cost improvement. You would also remember that we had said earlier that from a cost point of view, we've invested ahead of time in branding in innovation, et cetera. And some of the operational scale benefits are also coming through there.

Perfect. Perfect. That's great to hear. My second question is on Solar Rooftop wherein you have indicated that roughly half of the contract has gotten executed. So then would it be fair to assume that roughly half of the value of the contract would have gotten recognized as revenues and bulk of that would have flown through in first quarter?

Actually, it's a mix -- it's -- half has been done as you are right. It's actually been executed over the last quarter and this quarter.

Okay. Any idea that you can give, what could have been the quantum of revenues that we would have recognized in first quarter? And bulk of the remaining, is that likely to get recognized in second quarter itself? How are we thinking about building this business both from the perspective of B2C and new tenders that we are participating in?

Yes. So I don't know if we can give out percentage break up. Maybe we can just quickly see if we can come back to you on that Aditya. Like I said, part of this was done in the first quarter. A larger number of cost adjusted this quarter, I would expect that this, again, gets done over -- it gets completely done this in the coming quarter -- not pretty much, with some spider in the quarter there after. The continuing growth in this business outside of this would be partly with the B2C business that you're saying, B2C why we include C&I which, as I just said, we have now rolled out in 7 states, and we should start seeing the benefits of that to come through. We've hired people. We've got the on-boarded channel partners. We have a fit-for-purpose product, which we've rolled out into the market. So, all of those have happened. We may also selectively participate in some more [indiscernible] tenders, but that will be selected like we've done on it this time, we are pretty keen that the profitability characteristics have to be worthwhile for us to participate. But yes, I think there is -- there is clearly momentum binding in this business.

The next question is from the line of Siddhartha Bera.

Yes. This is Siddhartha from Nomura. Sir, first question is on this Fans. We have mentioned in the presentation that the price hikes has been in the range of low single digits. While you mentioned 15%, 16% overall increase. So is it in Fans, we have taken lesser price increase compared to the rest of the portfolio?

Siddhartha, you're referring to Q2. What we talked about business cumulate a price increase over the last 2 quarters. If you look at the commodity cost trend, a large part of the commodity increase happened from February to June and a large part of the price increase that we have taken at that point of time. Whatever is left out to get to about 80 percentage of our cost coverage has been taken in Q2. And as we talked earlier, we do see some of the commodities further going up, and we'll be disciplined enough to pass that also net of any cost savings that we get from Unnati.

As you could imagine, that are a continuing process now.

So another point follow-up to that has been also that you have mentioned that the new business is around 10% of the revenues in quarter 2, assuming a large part of it is coming in ECD, so the entire margin sort of moderation in ECD, is it only the cost pass through? Or is there some impact of the new businesses which may have lower margins initially?

See, to start with fundamentally, if you look at the gross margins or the material margin compared to the last two quarters, at Crompton level excluding some of the solar rooftop and other things, we are similar to Q2 levels on our gross margin. So that has been, by and large, rest. Some of the [indiscernible] does come in on account of Solar Rooftop and Pumps, but we do get a high operating leverage on that because that being a pass-through to EBITDA.

But actually, when we just find further as a share of revenue -- Share of revenue, historically also, you will have solar accounts in our share of revenue, which has come down and a share of solar, which is one -- rooftop -- sorry, Solar rooftop which has gone up. And actually, I should clarify, once again, this we are completely [indiscernible] as fans is concerned, when I say we have approximately 15% price increases. Fans will be at that top. If you look at the price increases that we've taken over the last two quarters, some of which, of course, were taken towards the end of last quarter and grow through [indiscernible]

The next question is from Sameer Gupta.

Sir, I just wanted to understand the solar part of the business, which is including pumps and rooftops, how should we look at it, let's say, from a medium-term view? Is there a landscape I mean, this can be very big. We are looking at other competitors scaling it up as we speak, what would be our right to win here? How do we go about this? Is there a target in our mind that we are looking at, let's say, in FY '29 we are targeting this part of the business to clock, let's say, this much of the revenue also the part is now done. Do we expect any repeat of these orders or similar orders from other governments?

Yes. So let me answer the second question this first, like I said earlier, we do think that there may be some further orders that we will secure. And so that will add to the order book. Having said that, we had with the earlier solar rooftops as the solar pumps, we will be very particular about the profitability characteristics of new orders. But absolutely, your point is back on. This is a large business. This is a large business, solar rooftop by themselves are per INR 26,000 crores business. This is except the kind of business where Crompton has a very strong right to win. This is -- don't take my word for it. This is also the reason why we have our solar pump business ramped up so quickly, albeit the size to market there is smaller. Remember, when a person is buying a product, which is, let's say, INR 1.8 lakh, INR 1.6 lakh, which he expects will last over the next 20 to 25 years. The one thing that they have most about is trust. One thing that they care most about is the ability to service the product should something go wrong. And this is a product in which visually you cannot tell the quality of the product, right? How you can you tell whether the quality of the panel that is being used is A, B or C grade, right? So as we are making foray into this business, we are very optimistic about this turn particularly because the B2C and the C&I part are similar to our other businesses as being high ROCE and strong cash flows. There are also adjacencies in this business. As BES develops, as inverters become a large part of the market, these are all adjacencies, which should be available to us going forward. Yes. So this is -- there is a lot of potential in this segment.

Got it, sir. And just a follow-up here. So what would be our revenue, let's say, per household from this solar rooftop projects. So I understand there is a INR 2 lakh outlay from a customer point of view, how much of that value are recapturing?

So when I say INR 1.8 lakhs or INR 2 lakh, of INR 1.8 lakh is the the amount of -- the amount that is outlay for 3-kilowatt unit, right? Part of that is, as we know today is paid for part of this subsidy [indiscernible] based and part of it, the consumer base. So for us, the product sold is INR 1.8 lakhs.

Got it. And installation is over -- and Installation is over and above INR 1.8 lakh, is it?

Not really. This is inclusive of installation. This is inclusive of instillation. So it's like a turnkey thing. You -- the guy buy this product from you and you install it and give a product. And of course, you help service it over a period of time.

So Crompton would be involved in even installing the product. They are not going to give it out to contractor?

We have in each market, we have people who are capable of installing. I mean, just only a clear guys, in Andhrapradesh, we have an order for 38,000 units out of which 20,000 units have been installed by prompt we also were selling only a product. This is the entire value chain of making getting the kids, supplying it to various parts of the state and then installing it, all of that eventually for [indiscernible]. Of course, who are doing it first.

Sorry, I'm just elaborating on this point. But earlier during the call, I think CFO sir mentioned that the gross margin is lower, but it flows through completely to EBITDA. So the understanding was that there is no other cost item of installing.

So let me explain -- good point, let me explain. We have agency with whom we have bought in into partnership with, right? And that agency undertakes the job of installing the product, right? That is why the costs are pretty much between gross margin and EBITDA, right? But that does not mean that Crompton doesn't take active role in ensuring that it gets done. It's going on in our way. It is an agency, which is active on our behalf.

Got it, sir. This is very clear. And just one follow-up, sir, one bookkeeping question. What would be the total quantum of price hikes, let's say, in the last 9 months starting from B rating changes and the inflationary pressures in Fans that you would have taken?

For fans, if we have to look at it, it is somewhere around 70 to 80 percentage is what we would have taken cumulatively in the last 9 months. large part of that falling between March to June of largely this financial year and late last year. And also probably, I'm just adding in the impact of this is also the strength of the brand, one of the things that we always ask is, is how do you validate the investment that we are putting behind brand, it is validated by general trade is a large business and some of our core categories are strongly grown in volume after the price increase also.

The next question is from Praveen Sahay.

I'm Praveen Sahay from PL Capital. Sir, my question is related to the inventory. So for this quarter, the inventory has been increased, and you said that, that is normalized now. Is it correct?

That's right. So the -- what I said is going into Q1, you will recall, that our inventory levels were low. Now the inventory levels as they see is pretty much identical what we had about a year ago.

Okay. So by end of Q2, the inventory level has been normalized?

Yes. Yes. The supply disruptions that we had, we are past them.

Perfect, sir. Second question is related to the export. Can you give some more color on the products and the geographical location for the export where you are doing and 70% of our growth in Q2, what you had achieved? And also some color like where as a percentage of contribution where you want to take this export to?

Yes. So this is something I said a few quarters ago. We have identified exports as an area which there is a lot of potential for a company like open. We have also, therefore, appropriately higher team, which is , which has been on the job. Currently, our exports is largely fans led with some exports being in NGA and SDA, right? This is today largely in Africa, in Middle East and Southeast Asia and Southeast. [indiscernible] So today, it is in these segments. What I am at liberty to tell you is this growth has come. If you don't mind, I won't tell you which countries because from a competitive perspective, it would be compromising us. But this has come from not only selling more into countries that we sold, but also entering in a big way adjacent countries. I do believe that exports can potentially be much larger, much, much larger I would -- I think, hopefully, this will be -- this rate of growth will sustain over the next couple of years.

And two things related to that. One, is that the Pronto brand you are selling in these geographies? And secondly, how is the margin profile of export versus domestic B2C?

Yes. So first of all, we are a consumer pracompany. So these products are sold as a [indiscernible]. And the margin profile is similar to the one that we have in our domestic sales. Actually, a little lower but compensated by the fact that we don't give credit in the export business, it's cash.

The next question is from the line of Keyur Pandya.

If I may, I want to mention this, I should the confidence on the export market also arises from the fact that we are the largest fan ceiling fans company in the world. So if anybody has scared is us in sheeting fans. Presumably, that will help us in selling our products in various parts of the world. And it is.

Sir, Keyur Pandya. The question is from E&P spend. So we have seen for the last couple of quarters or 3 quarters. E&P spend going up -- going down as a percentage of sales this quarter in absolute terms as well. So it's more technical to manage the cost so how should we think of it for FY '27 as well as going ahead since we are launching many new categories and you have always talked about more sell-out and just in that backdrop, this discrepancy, if you can just enlighten on this thing.

Yes. So good question. the A&P spends are a factor of both advertising and promotions, A&P and first point I want to make is you will recall. I said earlier that we have been, if you will, repositioning our e-com presence in order to optimize profitability e-commerce. And what that does mean is that some of the promotion spends, which going to e-commerce, which go into your A&P have, therefore, has a conscious tactical approach being curtailed. So that's one of the reasons that is not strictly comparable. This quarter, incidentally, was also a quarter where we incurred a lot of [indiscernible] advertising spend which are not going into A&P. So we relaunched our brand. There was a huge brand relaunch even, et cetera, et cetera. those costs actually, which -- while they do the same good job as A&P are not classified as a part of A&P. So to 1/3 a smaller extent as some of these new businesses that we are in, they don't require right? So if you look at, like we said, 10% of revenues come from certain some product, which doesn't require an A&P than the percentage of A&P will fall. So that's to a small extent, I must say, currently. But these are the reasons that our A&P spend this quarter is not strictly comparable to the previous quarter. But as we have said time and again, we are very clear that Crompton's brand is our greatest strength. And hence, the investment in Crompton brand refresh and so on and so forth. So yes, we will -- we are not looking at brand and promotion expense as cost management.

Okay. Just a follow-up. So annually, what should we think of E&P as a run rate or in percentage terms? And if this onetime costs have been added to some other, if so, this can quantify so that we can model it.