Hi. Good evening, everyone. Welcome to the Q2 FY27 earnings call of Crompton Greaves
Consumer Electricals Limited, hosted by Ambit Capital.
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
Phartiyal, Business Head, Home Electricals, Mr. Shaleen Nayak, Business Head, Lighting, Solar
Rooftop and Wires, Mr. Anand Kumar, Business Head, Pumps and Kitchen Appliances, Mr.
Rajat Chopra, Global Sales and Service Head, Ms. Shwetha Sagar, Chief Business Officer,
Butterfly Gandhimathi, and Mr. Ruchir Jain, Head Investor Relations and Corporate Strategy.
As a reminder, all participants' lines will be in the listen-only mode and participants can use the
raise hand feature to ask any questions post the opening remarks.
Now, I invite Mr. Promeet Ghosh to take us through the key highlights of the quarter, post which
we will open for Q&A. Thank you and over to you, Mr. Ghosh.
Promeet Ghosh:
Thank you, everyone. Thank you, Dhruv. And good evening, everyone.
Welcome to the Crompton Greaves Q2 FY27 earnings call. 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 and give you more colour 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 Dhruv, so I'm not going to do it again.
I'm very happy to share that Crompton's momentum of strong revenue growth and 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, Cephyr, with a new tag and a distinctive sonic identity.
Underpinning this evolution is our innovation agenda anchored in three strategic vectors: designled innovation, technology forward and smart & connected. By combining these three vectors
across business units, 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, and this might be something that may be at the back of your minds,
the supply chain disruptions which impacted us in Q1FY27 are behind us now. We have
appropriately stepped-up inventory levels.
Days of inventory which were low going into Q1FY27, as you will recall, have now normalized
to similar levels as they were one year ago. Moving to our quarterly performance, the benefits
of our efforts in repositioning the business are clearly visible. Crompton delivered robust double-
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digit growth across all our business segments in Q2 FY27, driven by sharp and focused execution
and meaningfully differentiated product launches, some of which, you can see in the investor
deck.
Amidst a challenging macro environment, our consolidated Q2 FY27 performance firmly
validates the trajectory that we are on. Revenue grew by an impressive 18.2% YoY to Rs.2,263
Crores. EBITDA delivered Rs.205 Crores, surging 24.1% YoY, with margins expanding 40
basis points to 9% compared to a year ago. Operating leverage and Unnati programme drove the
bottom-line growth in a tough macroeconomic environment with respect to commodities. PBT
excluding exceptional items, grew by 36.2%. We had an exceptional item of Rs.20 Crores, as
some of you will recall, in Q2 FY26, which was towards Baroda plant restructuring. This led to
PAT growing at 65% ahead of PBT. PAT margins expanded by 160 basis points. This is not
strictly comparable. The PBT number excluding exceptional is what is comparable.
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
disciplined 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 had been
undertaken in Butterfly some quarters ago and is helping us handsomely in that business today.
Now, coming to segment level performance. Our category leadership continues to be across our
portfolio. In ECD, we delivered stellar 19.4% YoY growth with EBIT margins improving YoY
to 11.6%. This is 30.7% growth over the previous year. Fans delivered double digit growth this
quarter. Our BLDC fans continued the strong momentum, especially in general trade, with the
growth of 40% aided by focused portfolio interventions and improved reach.
Pumps - 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, tapered. 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 the coming quarters. Solar pumps, importantly, continues to support our conventional Agri
expansion, widening our distribution and portfolio range. This is aiding a strong trajectory in
our agri business.
Appliances - 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 continued its momentum and grew 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.
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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 LKA 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:
Wires and solar rooftop continue to build strong on-ground momentum. We launched our wires
business in South India in Q1FY27 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 six states, and we are in the early stages of building this aspect of the
business up.
Lighting:
Sustained performance with 14.3% YoY growth to Rs. 298 Crores. This has been driven by
ceiling lights and outdoor range in B2C. This is something that I have been repeatedly calling
out quarter after quarter. This is still the case here. Alongside this, industrial and indoor
commercial segments are driving growth in B2B area. Both these segments that is industrial and
indoor commercial segments have delivered strong double-digit growth this quarter. EBIT stood
at 12.9% in lighting. It is lower than it was last year, largely due to the B2B business being
impacted by pre-contracted orders.
Butterfly:
In Butterfly, mid-teens growth has sustained with 15.9% YoY growth. This is after excluding
what was an in-house sale of mixer grinders, which was there in the base 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 bulk of the growth
continues to be led by share gain in core categories. This is sustainable 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 recorded the highest
ever quarterly revenues. We expect that the momentum in this channel will continue to build
and it is our belief that international business presents a significant opportunity for this company
over the next couple of years. 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 three quarters on the back of various interventions in improving the quality of revenues
and investing for the long term, we believe we are very well on track for our medium-term
guidance. We are entering the second half of the year with tremendous momentum, a leaner cost
structure, and a brand that is resonating deeply with consumers.
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We look forward to continuing to update you on our progress. Thank you.
Dhruv Jain:
Thanks, Promeet. We'll now move on to the Q&A session. Anyone who wishes to ask a question
may use the raise hand feature. So, the first question we'll take is from Aditya Bhartia. Aditya,
you can go ahead and ask your question please.
Promeet Ghosh:
And if you can just introduce yourself, that'd be good. Go ahead, Aditya.
Aditya Bhartia:
Hi. Good evening, Promeet. This is Aditya Bhartia from Investec. My first question is 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 cost increases would have already been passed on and what level of price
increases may be further required and how the near-term margin outlook is looking like.
Promeet Ghosh:
Yeah, Aditya, as you have correctly noted, RM price increases have been quite sharp in our
business. We have said this before, and I will say this again. As leaders in this business, we have
taken the lead in passing on price increases. But as I look at the kind of price increases that we
have done over the last six months in various businesses, our price increases have been between
15-16%. I don't want to get into specific numbers, but most of our businesses, outside of lighting,
as lighting is coming from a period of deflation to suddenly having to inflate prices. So that's a
little bit different.
But order of magnitude in various businesses, you can say between 11-15% is the kind of price
increase 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, you know, taking price increases or expressing the
intent to take price increases somehow, not all of them always seem to fructify, but with that as
it may. We have gone ahead and taken most of these price increases.
I would say that this is something that is continuing to build and as appropriate we will 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 have noted earlier, we have a very
rigorous program called Unnati.
So, I think the margins in this company will be a factor of price increases, of operating leverage,
which we are begining to see, and of cost improvements. You will also remember that we had
said earlier that from a cost point of view, we have invested ahead of time in brand building, in
innovation, etc. And some of the operational scale benefits are also coming through that.
Aditya Bhartia:
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 been recognized as revenue and bulk
of that would have flown through in first quarter?
Promeet Ghosh:
It’s a mix. Half has been done. It's actually been executed over the last quarter and this quarter.
Aditya Bhartia:
Okay. Any idea that you can give what could have been the quantum of revenue that we would
have recognized in first quarter? And bulk of the remaining, is that likely to get recognized in
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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?
Promeet Ghosh:
So, I don't know if we can give out a percentage breakup. Maybe we can just quickly see if we
can come back to you on that, Aditya. As I said, part of this was done in the first quarter. A
larger number, of course, is definitely done in this quarter. I would expect that it will get
completely done in the coming quarter, pretty much with some spillover in the quarter thereafter.
The continuing growth in this business outside of this would be partly with the B2C business
that you're saying. B2C includes C&I, which, as I just said, we have now rolled out in seven
states, and we should start seeing the benefits of that being to come through.
We have hired people, onboarded channel partners, we have a fit for purpose product, which we
have rolled out into the market. So, all of those have happened. We may also selectively
participate in some more government tenders, but that will be selective. Like we have done on
it this time, we are pretty keen that the profitability characteristics have to be worthwhile for us
to participate. But I think there is clearly momentum building up in this business.
Aditya Bhartia:
Perfect. Thank you so much.
Promeet Ghosh:
Thank you.
Dhruv Jain:
Thanks. The next question is from the line of Siddhartha Bera. Siddhartha, you can unmute and
go ahead.
Siddhartha Bera:
Hi team. Good evening. This is Siddhartha from Nomura. Sir, first question is on these fans,
we have mentioned in the presentation that the price hikes here have been in the range of low
single digit, while you mentioned 15-16% overall increase. So, is it that in fans we have taken
lesser price increase compared to the rest of the market?
Kaleeswaran Arunachalam: Siddharth, probably you are referring to Q2 impact. What we talked about is the cumulative
price increase of the last two quarters. If you look at the commodity cost trend, a large part of
the commodity increase happened from February to June and large part of the price increase
that we have taken at that point of time. Whatever is left out to get to about 80% of our cost
coverage has been taken in Q2 FY27. And as we talked earlier, if we do see some of the
commodities further going up and we will be disciplined enough to pass that also, net of any
cost saving that we get from Unnati.
Siddhartha Bera:
Understood, sir.
Promeet Ghosh:
Price hikes as you might imagine, Siddhartha, are a continuing process.
Siddharth Bera:
Yeah. 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 Q2 FY27, assuming 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?
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Kaleeswaran Arunachalam: See, to start with fundamentally, if you look at the gross margin 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 FY27 levels on our gross margin. So that has been by and large restored.
Some of the mixed impact 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.
Promeet Ghosh:
Share of revenue, you know, historically also you will have solar pumps, which would be your
share of revenue, which has come down and share of solar rooftop has gone up. And actually, I
should clarify, once again, just so we are completely clear, insofar as Fans is concerned, when I
said, we have approximately 15% price increases, Fans would be at the top. If you look at the
price increases that we have taken in the last two quarters, some of which, of course, were taken
towards the end of last quarter, and growth will obviously be restored.
Siddharth Bera:
Got it, sir. Thanks a lot. I will come back in the queue.
Dhruv Jain:
Thanks, Siddharth. The next question is from Sameer Gupta. Sameer, please go ahead.
Sameer Gupta:
Hi. Good evening, everyone. Thanks for taking my question. So 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, you know, 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 FY29, we are targeting this part of the business to clock this much of the revenue. Also,
the AP part is now done. Do we expect any repeat of these orders or similar orders from other
governments?
Promeet Ghosh:
Yeah, so let me answer the second question first. Like I said earlier, we do think that there may
be some further orders that we may secure. And that will add to the order book. Having said
that, as with the earlier solar rooftops, as with other solar pumps, we remain very particular about
the profitability characteristics of new orders. But absolutely, your point is bang on. This is a
large business. Solar rooftops by themselves are Rs.26,000 crore business. This is exactly the
kind of business where Crompton has a very strong right to win.
This is also the reason why we have our solar pump business ramped up so quickly, albeit the
size of the market there is smaller. Remember, when a person is buying a product, which is, let's
say, Rs.1.6 – 1.8 Lakhs, which he expects will last over the next 20 – 25 years, the one thing that
they care most about is trust. The one thing that they care most about is ability to service the
product should something doesn’t go wrong. And this is a product in which visually you cannot
tell the quality of the product, right? You cannot tell whether the quality of the panel that is being
used is A, B, or C Grade.
So, as we are making a foray into this business, we are very optimistic about this product,
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 BESS develops, as
inverters become a large part of the market, these are all adjacencies which will be available to
us going forward. Yeah, there is a lot of potential in this sector.
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Sameer Gupta:
Got it, sir. And just to follow up here, what would be our revenue, let's say per household from
this solar rooftop project? So, I understand there is a Rs. 2 lakhs outlay from a customer point
of view, how much of that value are we capturing?
Promeet Ghosh:
Hold on. When I say Rs 1.8 lakhs – Rs. 2 lakhs, Rs. 1.8 lakhs is the amount that is outlayed for
a three-kilowatt unit, right? Part of that is, as we know today, is paid for, part of this is a subsidy
that the government pays and part of it the consumer pays. So, for us, the product sold is Rs. 1.8
lakhs. Got it. And installation is over and above.
Sameer Gupta:
Installation is over and above 1.8 lakhs, is it?
Promeet Ghosh:
Not really. This is inclusive of installation. So, it's like a turnkey thing, the guy buys this product
from you and install it and give him a product and of course you help service it over a period of
time.
Sameer Gupta:
So, Crompton would be involved in even installing the product. They are not going to give it out
to the contractor.
Promeet Ghosh:
We have in each market; we have people who are capable of installing. I mean, in Andhra
Pradesh, we have an order for 38,000 units, out of which 20,000 units have been installed by
Crompton. They are not only selling only a product. So, the entire value chain of getting the kits,
supplying it to various parts of the state and then installing it, all of that eventually falls into
Crompton. Of course, we have people who are doing it for us.
Sameer Gupta:
Sorry, I'm just elaborating on this point. But earlier during the call, I think the 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.
Promeet Ghosh:
Good point. Let me explain. We have an agency with whom we have gotten into partnership
with. And that agency undertakes the job of installing the product. That is why the costs are
pretty much between gross margin and EBITDA. But that does not mean that Crompton doesn't
take an active role in ensuring that it gets done. It's going on in our name. It is an agency which
is acting on our behalf.
Sameer Gupta:
Got it, sir. This is very clear. And just one follow up or one book-keeping question, what would
be the total quantum of price hikes, let's say in the last nine months, starting from BEEs rating
changes and inflationary pressures and fans that you would have taken?
Kaleeswaran Arunachalam: For fans, if you have to look at it, it is somewhere around 17–18% is what would have taken
cumulatively in the last nine months. Large part of that falling between March to June of largely
this financial year and late last year.
Sameer Gupta:
Got it, sir. This is very helpful. Thanks again for patiently answering. I'll come back in the queue
for any follow ups.
Kaleeswaran Arunachalam: And also, I'm just adding in the impact of this is also the strength of the brand. One of the things
that we always ask this is how do you validate the investment that we are putting behind brand?
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It is validated by General Trade, which is a large business and some of our core categories are
strongly grown in volume after the price increase also.
Dhruv Jain:
Thanks. The next question is from Praveen Sahay. Praveen, please go ahead with your question.
Praveen Sahay:
Thank you for the opportunity. I am 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 is
normalized now. Is it correct?
Promeet Ghosh:
So, what I said is going into Q1 FY27, you will recall that our inventory levels were low. Now
the inventory levels as day of sales are pretty much identical to what we had about a year ago.
Praveen Sahay:
Okay. So, by end of Q2 FY27, the inventory level has been normalized?
Promeet Ghosh:
And the supply disruptions that we had, we are past those.
Praveen Sahay:
Perfect, sir. Second question is related to the export. Can you give some more colour on the
products and the geographical location for the export where you are doing and the 70% of growth
in the Q2 FY27, what you had achieved? And also, some colour like whereas a percentage of
contribution where you want to take this export to?
Promeet Ghosh:
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 Crompton. We have also therefore appropriately hired a
team which has been on the job. Currently, our exports is largely Fans-led with some exports
being in Pumps, in LDA and SDA. This is today largely in Africa, in Middle East and South
Asia. So today it is, in these segments. What I am at liberty to tell you is this growth has come.
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. I think
hopefully this will be this rate of growth will sustain over the next couple of years.
Praveen Sahay:
And two things related to that. One, is that the Crompton brand you are selling in these
geographies? And secondly, how is the margin profile of export versus domestic B2C?
Promeet Ghosh:
Yeah, so the first of all, we are a consumer product company. So, these products are sold under
the Crompton brand name. 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.
Praveen Sahay:
Thank you, sir and all the best.
Promeet Ghosh:
I forgot to mention that our confidence on the export market also arises from the fact that we are
largest ceiling fan company in the world. So, if anybody has scale it is us in ceiling fans,
presumably that will help us in selling our products in various parts of the world and it is.
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Dhruv Jain:
Thank you. The next question is from the line of Keyur Pandya. Keyur, please unmute your line
and go ahead.
Keyur Pandya:
Hello. Yes. Keyur from ICICI Life Insurance. Sir, the question is on A&P spends. So, we have
seen for the last couple of quarters, three quarters, the A&P spends going up, going down as a
percentage of sales this quarter in absolute terms as well. So, is it more technical to manage the
cost?
Also, how should we think of it for full FY27 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. Thank you.
Promeet Ghosh:
Good question. The A&P spend are a factor of both advertising and promotions, A&P. First
point I want to make is you will recall, I said earlier that we have been, repositioning our ecommerce space, in order to optimize profitability in e-commerce. And what that does mean is
that some of the promotion spends which is going to e-commerce, which is going to your A&P,
have therefore been as a conscious tactical approach being curtailed. So that's one of the reasons
that your A&P is not strictly comparable.
This quarter, incidentally, was also a quarter where we incurred a lot of quasi-advertising spends,
which are not going into A&P. So, there was a huge brand relaunch event, etc.
Those costs actually, which while they do the same good job as A&P, are not classified as a part
of A&P. So, a smaller extent, as some of these new businesses that we are in, they don't require
A&P spends? So, if you look at, 10% of revenues come from a certain product which doesn't
require an A&P, then the percentage of A&P will form.
So that's to a small extent, 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. We are not looking at brand and promotion expense as cost
management.
Keyur Pandya:
Just a follow up. So annually, what should we think of A&P as a run rate or in percentage terms?
And if this one-time cost has been added to some other head, if so, quantify so that we can model
it accordingly. And all the best.
Kaleeswaran Arunachalam: See typically, if you look at it, our spend rate has historically been around Rs. 250 - 260 Crores.
Right now, in H1, if you look at it has been around Rs. 100 Crores. Depending upon how
situation pans out, we will try to keep absolute similar to last year. But it also depends upon how
the macro headwinds come through. If there is any call that we take at that point of time we will
evaluate, but currently, we will continue to invest and take it forward.
Dhruv Jain:
Thanks, Keyur. we will now move on to our next participant, Viraj Kacharia, please go ahead
and ask your questions.
Viraj Kacharia:
Thank for the opportunity. And just a couple of questions on the butterfly side. First is if we can
just give some colour in terms of mix between what are the kind of volume, price and new
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product contribution has been either for the quarter or H1FY27. That is one. Second is, in the
press release, we talked about that we expect infrared cooktops to be a new growth engine. So,
can you give some more perspective? What gives us the confidence considering that the
competition is much higher now? So, is it that the industry tailwind we expect to be very strong?
Or we expect to gain share? And if it's the latter, then what initiatives you're banking to
differentiate and gain? So that is second. And I have two more. I'll just maybe, you know, wait
for an answer.
Kaleeswaran Arunachalam: If you look at it, Butterfly overall, the core business grew at 16%. And compared to last year, a
large part of the growth has been price-led at this point of time. To your second question on
infrared category, what we said is an emerging opportunity that we have.
Fundamentally, what we believe is there is an opportunity for kitchen to get more electricals, as
much as we look at as a new trend that is emerging in. What we have seen is a one-time spike
that people are backed up in their kitchen with the infrared cooktop being bought. As we move
forward, it's an emerging opportunity that we should also be well-positioned to capture that.
You know that as to Butterfly today is a leader in cooktop on a pan-India basis, largely the
stainless steel to start with. And with that strength coming in, we do think there is a right to win
in the infrared also and in the long-term basis, we wanted to capture that opportunity.
Viraj Kacharia:
Okay. In terms of distribution, how much is driven by new category entry versus, say, new
category entry and aggressive pricing versus cost on the gross margin? And post-GST
normalization, how is the demand shaping up? And last is on the distribution. See, we are
predominantly south based. Now, next two to three years, how do you expect this mix to change?
So given Crompton is also much stronger in west and north, is this more of a low-hanging fruit
or any colour in terms of initiatives we are taking?
Kaleeswaran Arunachalam: So, I'll take one by one, Viraj. I think you talked about new product. I think more at a high level,
what we would like to say is the brand architecture that Butterfly has put across, which
introduced the Idea first series as one of the biggest levers of growth.
I'm glad to say that that is more than a double-digit contribution to overall share of business for
Butterfly. Second is in terms of GST. GST has not benefited across all categories, but it is in
pressure cooker, which is where the GST rates have come down. We continue to see
disproportionate growth in pressure cooker category, and we see that trend to sustain as we move
forward also.
The last question on Butterfly, looking at pan-India opportunity, yes, that is a priority that we
are working upon, but that's not to look at only Crompton strength, but also independently look
at how can Butterfly win nationally. We would be first starting with few selective markets,
Maharashtra being the first one, where you will very soon see our regional campaign that will
start for our five-star cooktop that we have launched recently, that will be our entry route. And
as we succeed, you will see us penetrating into other markets also.
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At a very early signs, if I have to see it as a green shoot at this point of time, compared to last
year, we are already seeing reasonably strong disproportionate growth in North, East and West
as compared to South, where the base is still small, but these are encouraging signs to start with.
Viraj Kacharia:
On gross margin, sir?
Kaleeswaran Arunachalam: I think they talked about it through Idea First series today.
Viraj Kacharia:
No, there was an impact on gross margin, in Butterfly in this quarter.
Kaleeswaran Arunachalam: Gross margin, if you look at it, it's largely again, as we said, it is price driven, and whatever is
the commodity cost that we have to absorb, largely we have passed it on. There's a marginal
difference between what we delivered last year to this year, but we would like it to keep it at that
level, because key is to capture the market share for Butterfly.
Promeet Ghosh:
I think the point that was made earlier, we should just clarify it, because we are getting a little
bit of a mistake about the infrared-cooktops. The point being made by Butterfly is that its
salience of the electric cooktop market is very low. And all of this growth that has come through
in the last quarter, and indeed in this quarter, is really in its core products. And part of the reason
is because we have taken whatever call we had taken some quarters ago about cooktops. We had
some history about cooktops back in the day. But as we have now addressed the supply chain,
as the salience of cooktops goes up, of electric cooktops, I must say, goes up, that's a promising
opportunity for us.
I must tell you also that in the glass cooktops, I'm delighted to say that Butterfly, being at the
forefront of innovation, has come up with a five-star cooktop, which nobody else has, which
translates into a saving of two cylinders annually, which is huge, not only for the consumer, but
also for the country. I do believe that that will help drive cooktop, the gas cooktop sales as well
and indeed, that's likely to be the way that they start to sell, that they make penetration in the
Maharashtra and the Western markets. One final point I want to make, which is something that,
you know, goes towards improvement in Butterfly quality of sales. In business after business,
we've been very focused on quality of sales.
In the N-E-W market, Butterfly is growing but what they have done is that they have shrunk the
footprint and are focusing on a smaller footprint and getting high-quality sales from there. And
once you start to get high-quality sales, they will increase the footprint. So similarly, what
they've done in the South, focus on the core, get your core right and then expand it. I hope that
clarifies.
Dhruv Jain:
Thankyou Promeet, we’ll take the next question from Umang Mehta. Umang, you can unmute
your line and go ahead with your question, please.
Umang Mehta:
Hi, thanks for the opportunity. And this is Umang here from Kotak Securities. My first question
is on raw material inflation and the outlook. Just to clarify, you mentioned that 80% is already
passed through, correct? And if that's the case, should we expect, in terms of gross margins or
gross profit growth of double digit, which you've seen this quarter, is it fair to assume that it will
be better and not worse going ahead?
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Promeet Ghosh:
Tough to say, Umang, because this is a commodity market, which is pretty unpredictable just
now. So, you know how it is, right? If I could predict how the geopolitics is going to go, then I'd
have a better grip on how commodity prices would go. But the point we are making is that we
do want to be pretty consistent in passing through cost increases to the market. Sometimes, like
we did in the last quarter, we will pass them on only towards the end of the quarter, sharp price
increases, because that's what we did. Or sometimes we will do it in small single-digit packets,
but we will pass these on. But when we do it in single-digit packets, we do them regularly. When
we do them in sharp increases, then of course, they are one-off. So tough to say, but yeah, we'll
be very vigilant in this.
Umang Mehta:
Understood. And just the second one was on the changes in LKA, which you are doing. You
mentioned that there'll be some cost savings. Possible to quantify how much was the channel? I
understand that you had a separate go-to market, in terms of standalone stores. So, what are the
changes we are looking to make over there?
Promeet Ghosh:
To give you a sense, at various points in time, disclosed the EBITDA loss that that business was
making. was between Rs. 16 – Rs 25 Crores. So that's the quantum of, hopefully, that should
give you a sense of when we say this is a business which has been restructured to move towards
profitability, that should give you a sense of the kind of loss or slash profits that are in play.
Umang Mehta:
Got it. Thank you so much and all the best.
Dhruv Jain:
The next question is from Rishabh Bothra. Rishabh, you can unmute and go ahead.
Rishabh Bothra:
Good evening, sir. I am slightly new to the space, but looking at your slide number five, where
you have mentioned the unlocking of Rs. 1,60,000 Crore TAM, I would like to know the new
adjacent categories, what kind of capex would be required? And with respect to manpower, what
kind of front loading can be there, which can impact the margins? Solar rooftop and wires.
Absolutely. What's the revenue as of now from the new adjacent categories?
Kaleeswaran Arunachalam: Rishabh, I think if you look at it, we have provided an ambition where we said about 14 - 15%of
our revenue would come from new businesses in the long run. And we think our trajectory is
moving in the right direction towards that. Some of the businesses that they have already started
and reaching to a reasonable level of scale, these solar pumps and solar rooftop, wires is a very
nascent entry at this point of time. The second question is on capex towards some of these
facilities. I think Promeet did call out that when we are looking at Greenfield, wires is also going
to be a part of it from our capex strategy perspective, because we believe it's a long-term play
for us and we have a very strong right to win and we want to leverage that.
The third question is in terms of manpower. I think somewhere we touched upon during the
course that one of our strengths is we have a go-to market that can carry many categories. And
that does mean that we have to leverage the strength of our one sales team that we have, largely
say our ECD platform. That engine can carry more. So, idea is not to create multiple dedicated
sales or manpower for this but leverage the existing team. There will be marginal increase in
category specialists and other teams being created for this, but not significant.
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Promeet Ghosh:
So, to give you a sense, one of the takeaways from the LKA business, which we had built on the
basis of a separate sandbox. One of the lessons we've taken away from that is that as we introduce
new businesses, we will not create fresh cost centres and heavy people expenses for them. The
solar pumps business, whether it is of our pumps business, pumps infrastructure, our solar
rooftop and wires for these leverages of our lighting infrastructure. And now the LKA business
is also going to leverage of our Butterfly infrastructure. You know, having an existing and robust
go-to market is one of our greatest strengths. And therefore, it allows us to build on these
businesses without having to spend a lot of money on, building a fresh go-to market. And indeed,
I must tell you, this is just the go-to market. Even the backend leverages of the scale that we've
got. So, both solar pumps and solar rooftops leverage of a common supply chain infrastructure.
LKA, which is a kitchen product, we do the same. The same holds true also for our innovation
spends.
Rishabh Bothra:
And secondly, if you could throw some light on what's the spare capacity we have for existing
businesses, headroom for growth, I mean, the existing business, we have facilities. How is the
utilization in existing capacity or what kind of revenue top-up we can do from current sweating
of the assets?
Promeet Ghosh:
He's talking about manufacturing, I think. I assume you're talking about manufacturing,
Rishabh?
Rishabh Bothra:
Correct.
Promeet Ghosh:
Since you're relatively new, just to brief you, Crompton has historically had a mix of outsourcing
and own manufacturing insofar as our pumps business is concerned. It has largely been an
outsource model for the last 85 years. So has been our case for our internal appliances’
businesses. These new businesses currently are also on an outsource basis. One of the signature
strengths of Crompton has been to be able to source products, ensure that they meet the quality
standards of Crompton, and therefore, particularly initially, optimize capital costs. that's the way
that we've approached it. As we go forward, as Kalees is saying, we look at whether we are
better off investing in manufacturing capacities. Today, there is no issue of supply constraints.
Dhurv Jain:
Thanks, Rishabh. The next question is from Manoj Gori. Manoj, please unmute your line and go
ahead.
Manoj Gori:
Thanks for the opportunity. Manoj Gori here from Equirus Securities. I have one question. If I
look at the price hikes that the company has taken across various product categories, and when
I look at the ECD growth numbers, and plus the volumes and the revenues were impacted in the
base quarter as well. So, how should we look at the volume growth across product categories?
Because as we have it for fans, we have roughly taken around 17-18% kind of price hikes since
last year. So, how should we read on the volume front? And probably how is the underlying
demand environment currently stays for product categories across our portfolio? That's the only
question, sir.
Promeet Ghosh:
So, volume growth, I'd say, since you first raised Fans. You know, particularly, our largest sale
is in GT and in rural. Our volume growth, in both GT, which is general trade, as well as rural
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has been quite robust. So, in fans, since that's the specific question there. So, price, insofar as
volume growth is concerned, in both GT as well as in rural, we have seen, you know, volume
growth. And I did tell you earlier that this quarter, for instance, our GT growth is strong double
digits. I was not exactly telling you the number, but that should give you a sense of how our
presence has grown. This is a much more profitable business, as well as the area of signature
strength for us. Insofar as lighting is concerned, I think I'd say it's fair to say that we had strong
ASP growth and volume growth. A part of the thing in B2C continues to be the improving share
of business of flood lights, and ceiling lights and outdoor lights. I'd say, do you want to comment
on the volume growth in Butterfly.
Manoj Gori:
So, basically, I just was more eager to understand from an ECD point of view.
Kaleeswaran Arunachalam: So, Manoj, fundamentally, what we are trying to state is, if you look at category after category,
Q2 is the first time where price increase has been largely passed down, and we see positive
volume growth coming across all categories. Particularly, we are a general trade driven
company, which is 80% of our business and that is showing very strong signs of growth. As we
move forward, in the investor day, we clearly called out that Fan as a category, we want to be at
1.5x-1.7x the category growth, which means that underlying volume growth also going to come
in.
We see that being driven by BLDC, which is something where we have improved to grow
significantly. We also see that at Standard and Seed, we clearly called out, which is our entry
level Fans, regulation will drive consolidation to drive volume growth. And TPW, which is
largely table, pedestal and wall fans, we continue the trend to be positive on volume growth
coming in.
So, as we move forward, considering where we are at the leadership portion in fans, and in many
other categories, we are only emerging, whether it is small domestic appliances or large domestic
appliances or Butterfly, we do not see volume growth to be a challenge at this point of time.
Manoj Gori:
Got it. Very clear. This was very helpful. Thank you and wish you all the best.
Dhruv Jain:
Thanks, Manoj. The next question is from Nilesh Doshi. Nilesh, please unmute yourself.
Nilesh Doshi:
Sir, in the presentation slide number 12, you have mentioned that the company has an ambition
to achieve the EBITDA margin of 11% to 12% by FY29. But I would like to say that historically,
even in FY25, the EBITDA margin was 11.8%, which has dropped to 10.4% in FY26. And in
the first half of the current year, it is 9.6%. So, by achieving the 11% to 12% EBITDA margin,
you are saying you will regain the margin, but not growth in the margin. And so, our profit
growth will be the revenue driven rather than the margin expansion. Is it correct, sir? Please
explain.
Kaleeswaran Arunachalam: Probably, you are looking at the organization recently, just to give you a perspective. When we
launched the Crompton 2.0 strategy, the underlying principle was to double our revenue, which
is growing business at about 15%. If you look at our investor day presentation, the phase one of
Crompton, we have been growing at about 6% on average. So, we are taking our growth rate up
by 2.5x from where we have been in the past. That means that we need to put money behind
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innovation, people and brand. And that means that as we build on that, absolute growth will
ensure that operating leverage will kick in. So, when we reach a 12% EBITDA at that point of
time, that is on a higher revenue base. Ideas to focus on revenue growth in a market like India,
that is most critical. And then follow it up by continuing leadership by gaining market share in
the categories where we are present in.
Nilesh Doshi:
Thanks. Sir, just now the earlier participant had asked about the fans business, because
Crompton's one of the core businesses is the fans. And currently, most of the houses, offices or
any premises, fans are already there. So, in such situations, what will our future volume growth
drivers for the fans business?
Kaleeswaran Arunachalam: Nilesh, we just answered it. Maybe you can reach out to the investor relation team again to get
some details on it. Thank you.
Dhurv Jain:
Thank you. That was the last question. Any comments from the management?
Kaleeswaran Arunachalam: Thank you, Dhruv, and everybody. All we wanted to say that this is our third year into Crompton
2.0. And we are getting into a quarter where we see a lot of positive trajectories in terms of
outcome. All our three engines are firing strongly in mid-teens growth, with margins expanding
most importantly by 20 bps. We are pretty much confident that we are entering into many
quarters, double digit growth trajectory backed by positive revenue growth and profit growth
also. Thank you and thanks a lot for your time.
Disclaimer - The following transcript has been edited for language, errors and grammar and therefore, it may not be a verbatim
representation of the call.
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