Crompton Greaves Consumer Electrical

Crompton reported topline of Rs. 1026 cr a fall of 15% Y-o-Y basis as against revenue of Rs. 1206 cr same period last year. The 15% decline in revenue is majorly attributed to Covid-19, whereas pre Covid-19 growth was strong at 14% Y-o-Y increase in sales for Jan-Feb 2020. EBITDA for the quarter ended March, 2020 came in at Rs. 141 cr with EBITDA margin of 13.8%. The company reported 27% decline on Y-o-Y basis in net profit to Rs. 102 cr as compared to profit of Rs. 140 cr reported a year-ago period. Given the uncertain economic outlook, the company considered it prudent not to recommend any dividend in FY20.

Crompton trades at a trailing valuation of 25.5 times. At this valuation; in the current state of affairs with subdued sales, poor government expenditure and continuous price erosion in LED industry Crompton has many challenges along the way. We believe that the slowdown in current business, tapering of industry prospects in the mid-term and re-rating of stock to factor in the complete impact of covid-19 shall further weigh heavy on the stock & hence assign a SELL rating to the stock.