Crompton Greaves is ready to lose margins to protect market share

Mathew Job, CEO of Crompton Greaves Consumer Electricals Ltd (CGCEL), spoke to CNBC-TV18 at the Crompton Closed-Door Media Roundtable Discussion focused on the new BEE (Bureau of Energy Efficiency) Transition in the Fans Industry (1st March, 2023) about the company's recent initiatives and challenges. The company aims is to get energy-efficient fans to customers as quickly as possible, with a minimal price hike. However, this transition to one-star rated fans resulted in a 15 percent cost increase.

During the conversation, he mentioned that Crompton sells approximately 2 crore fans every year, with ceiling fans accounting for bulk of the sales of 80 percent.

He said, “Our R&D teams have worked hard to ensure that the entire Crompton portfolio which is in excess of 500 SKUs, actually redesigned to meet the main new norms. That work took more effort, especially in terms of deployment of the R&D resources. Now having done that, all our ceiling fans products have been converted to star rated fans.”

He added, “Our current objective is to get these superior products to the consumers hands as quickly as possible and also at a minimum price increase. And also then to be able to communicate to consumers that energy efficient fans, which were traditionally much more expensive, are now within everybody's reach.”

In October to December 2022, company didn't overload channels with older lower-cost fans inventory. Whereas, select competitors likely sold higher volumes of the earlier inventory at lower prices. Job went on to discuss the challenges that the company faced and said that in January 2023, Crompton had to redesign its entire product portfolio to meet the Bureau of Energy Efficiency (BEE) standards.

Job emphasized that it was important not to lose market share, even if it meant compromising on margin. Although there was a 30 percent cost increase in fans, Crompton passed on just 20 percent to customers.

Crompton is looking to build a superior position in the pump space and has corrected prices to make itself more competitive. The company will also start advertising pumps starting April-June.

Job said, “We want to build superior proposition in pumps and have rejigged our entire portfolio, especially in residential so those products have started going into market in December. We have corrected the prices to make ourselves more competitive.”

The key objective for Crompton is to get growth back in the short term. Although the company's gross margin was intact structurally in the last quarter, profitability eroded because its sales did not grow as usual. Margin erosion at the EBIT level was a concern for the company, but Job is confident that the company will return to double-digit growth in the short term.

The stock is down 17 percent on a year to date basis. However, a strong summer season this year could help normalize growth for the company. Fans are an integral part of Crompton's ECD segment (75% of sales). Crompton is the market leader in Fans, with ~28% market share and a sturdy SKU base. "We believe that company's fan growth could normalize from Q1-FY24, supported by a strong summer" says Jefferies. It adds "Better volume uptick due to a strong summer could aid faster liquidation of inventory, and help digest these price hikes. Butterfly synergies and traction in alternate channels (rural, E-comm) could support the next leg of growth. "