Near-term demand is lower amidst a host of factors such as inflationary challenges on consumer spending, rural weakness, and Q2 being a seasonally weak quarter post a strong summer. At the start of the festive season, Onam saw soft demand conditions in Kerala.

After broad-based growth in the June quarter, demand is expected to recover in the second half of FY25. Nuvama Research believes that growth in the fans category remains on the expected trajectory; however, with the expectation of BEE 2.0 ratings, there could be a temporary impact on the fans portfolio given product rejig, channels, and prices.

Antique Stock Broking also expects Crompton’s operational performance to witness an improvement from FY25 onwards. The demand recovery is on the back of a normal monsoon and expectations of rural demand recovery. This, according to analysts led by Amit Shah of the brokerage, will help the company deliver 27 per cent earnings growth over FY24–27 as against a 10 per cent drop over FY21–24. It has a buy rating on the stock with a target price of Rs 503.

While the company is focusing on growing the lighting products portfolio, it is looking at improving the performance of the Butterfly portfolio from FY26 onwards with an operating profit margin of 7–8 per cent, say analysts led by Achal Lohade of the brokerage.

Though the stock has corrected given the softness in demand, Nuvama Research believes that its long-term story is intact, given consistent product launches, price hikes, and channel realignment to aid growth.

Barring the Butterfly portfolio, most of Crompton’s segments reported strong growth in the June quarter. The company posted a growth of 14 per cent at the consolidated level, led by the electrical consumer durables segment, which reported a jump of 21 per cent.

Siddhartha Bera and Kapil Singh of Nomura Research said, “We had maintained that with the strong summer season demand behind us, we expect revenue growth momentum to normalise to 10–12 per cent Y-o-Y. Stable commodity prices and lower ad spend in a non-seasonal quarter are likely to support margins.”

The company expects its base business to grow at 10–12 per cent, with new business contributing an incremental 200–300 basis points. On the profitability front, the company has guided for a 200 basis points expansion over the next four to five years on the back of operating leverage and a better product mix. Nomura Research expects margins to improve from 11 per cent in FY25 to 11.8 per cent in FY27, led by operating leverage and price hikes. This is likely to drive a 21 per cent earnings growth over FY25–27, says the brokerage, which has a target price of Rs 498.

First Published: Sep 26 2024 | 10:53 PM IST