However, analysts at Elara Capital say the degree of price erosion may reduce in the second half of FY19. The management, too, indicated that margins may pick up substantially by the March 2019 quarter. Crompton is taking measures (including in-house manufacturing) to improve margins. The Street, however, will be watching this closely given competition remains high. Positively, only 35-40 per cent of the lighting market has been converted to LED, leaving scope for robust growth.
Electric consumer durables (ECD; over two-third of revenues) grew 15 per cent with profits jumping 21 per cent YoY. Growth has been broad-based with its wide range of products such as fans, pumps and appliances doing well. Pumps, earlier faced with competition, are now seeing a rebound.
Volumes grew 25 per cent YoY for Crest Mini (0.5-1.0 HP) pumps, while agri pump sales surged 60 per cent helped by a low base and deeper penetration. Crompton is also focusing on geysers and heaters.
With these factors and valuations being reasonable, analysts are positive on the stock. Kunal Sheth at Prabhudas Lilladher — while reducing his FY19 and FY20 EPS estimates by 4.7 per cent on the back of increased cost pressures — has maintained target price of Rs 279. Those at Elara, Religare and Edelweiss have target prices ranging from Rs 259-283, for the stock trading at Rs 215.