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    Crompton Greaves Consumer Electricals is betting big on the 'Butterfly' effect

    business | IST

    Crompton Greaves Consumer Electricals is betting big on the 'Butterfly' effect

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    Though raw material inflation and increased employee costs hurt Crompton’s margin, the company’s managing director Shantanu Khosla on Tuesday told CNBC-TV18 that efficiencies from Butterfly Gandhimathi are flowing in.

    Crompton Greaves Consumer Electricals Ltd reported its quarterly results early last week, with profit, margin, and earnings before interest, taxes, depreciation, and amortisation (EBITDA) falling short of estimates.
    The April to June period earnings are not comparable with previous quarters as the numbers include those after an 81 percent stake acquisition in Butterfly Gandhimathi.
    Crompton’s electrical consumer durables, such as fans and lighting, reported strong growth across categories in the first quarter. Butterfly, too, reported strong growth across categories.
    The company now plans to "grow disproportionately" in the built-in kitchen appliances segment of chimneys, dishwashers, and hobs, managing director Shantanu Khosla told CNBC-TV18. According to Khosla, this market is estimated at Rs 2,000 crore and is growing at a rate of 10 percent.
    The MD said the firm’s kitchen appliances are already witnessing better-than-expected growth.
    Though raw material inflation and increased employee costs hurt Crompton’s margin, Kholsa said that efficiencies from Butterfly are flowing in. "We are thrilled with the way the Butterfly business is coming together, and it is really been only a quarter. The management is fully in place. We are in the process of bringing the principles, policies, and approaches," he said.
    Khosla said Butterfly's top line was up 86 percent and the company is starting to see efficiencies come into play with the EBITDA margin at 10.2 percent, which is up from about the 5 percent level that it has been historically. "There are clear opportunities both in top line and cost synergies, which we will continue to execute again," he said.
    According to Khosla, the 61 percent year-on-year rise in employee cost was due to a low base. There were two real factors — performance bonus and performance payments for the previous year, which are decided by the board.
    "Some amount of that flowed in into this year since it was decided in June. Also, last year, the increments had been delayed till July. This year, we are back to a normal cycle of April. So, it (employee cost) is a bit of a one-time thing, and it will normalise in the coming quarter," he explained.
    While a 160 percent jump in the raw material cost impacted the margin, the MD said commodity cost deflation would benefit in the upcoming quarters.
    "The positive news is that we have seen commodity costs come down towards the back half of the quarter. Hopefully, commodity costs will continue to normalise. As that happens, we will pass some of the benefits on to the consumer and volume demand will gradually return. But this is at least about a couple of quarters away," he said.
    He has pegged Crompton’s three-year revenue compound annual growth rate (CAGR) at 11 percent.
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