Havells vs Crompton Greaves: Which stock is a better long-term investment?

Summer stocks Havells and Crompton Greaves are in focus on the back of surging temperatures across India. The rise in temperatures throughout the country also leads to an increase in the demand for consumer durables like fans, refrigerators, air conditioners, etc.

With almost the entire country facing heat waves, let's find out between Havells and Crompton Greaves, which stock has better long-term investment opportunities.

Stock price trend

Both stocks have given negative returns in the last 1 year. While Crompton has lost 22 percent, Havells is down over 7 percent in this period.

Meanwhile, in 2023 YTD, Havells has gained 10 percent, giving positive returns in 3 of the 4 months of the current calendar year. However, Crompton has shed over 12 percent in this time, giving negative returns in 3 of the 4 months.

Havells has gained nearly 2 percent in April so far after a 0.7 percent decline in March. The stock added 1.3 percent and 7.4 percent in Feb and Jan, respectively.

Crompton, on the other hand, was flat but positive in April, up 0.4 percent so far. Meanwhile, it declined 3.5 percent, 8 percent and 1.6 percent in March, Feb and Jan, respectively.

However, in the last 3 years, Havells has rallied over 170 percent from its COVID-low of ₹447, hit in May 2020, whereas, Crompton has surged 66 percent from its COVID-low of ₹177, hit in March 2020.

About the firms

Havells India Limited is an electrical consumer goods company. The company is engaged in manufacturing and distribution of equipment for domestic, commercial, and industrial applications. The company operates through segments such as Cable, Switchgear, Electric Consumer Durables, Lighting & Fixtures, and Lloyd Consumer. Its products range from motors, fans, LED lamps water heaters, coolers, air purifiers, water purifiers, air conditioners, television, washing machines and refrigerators, covering the entire range of household, commercial and industrial electrical needs. The company’s manufacturing facilities are at Faridabad in Haryana, Alwar, Ghiloth and Neemrana in Rajasthan, Haridwar in Uttarakhand, Sahibabad in Uttar Pradesh, Baddi in Himachal Pradesh.

Crompton Greaves Consumer Electricals Limited is also an India-based consumer electrical company. The company operates through two segments: Electrical Consumer Durables (ECD) and Lighting. It manufactures and distributes a range of consumer products ranging from fans, pumps and appliances in the ECD segment and a full range of lighting products. The company markets its products under the Crompton brand name in India. Its manufacturing locations include Goa, Vadodara, Ahmednagar and Baddi.

Earnings

In the December quarter, Havells reported a 7.3 percent decline in consolidated net profit to ₹283.52 crore on account of higher raw material costs, versus ₹305.82 crore in the year-ago period. Meanwhile, its consolidated revenue from operations during the quarter under review rose 12 percent to ₹4,127.57 crore as against ₹3,664.21 crore in the year-ago period.

Havells India Chairman and Managing Director Anil Rai Gupta said there was steady revenue growth amid moderating consumer demand in an inflationary environment.

"Margins witnessed improvements on the back of stability of raw material prices during the quarter. With continued investment in technology, consumer journey and talent, we are positively disposed towards revenue growth and profitability," he said.

Crompton reported a 41 percent YoY decline in consolidated net profit to ₹88.19 crore, However, its net sales rose 7.5 percent YoY to ₹1,516.21 crore in Q3FY23.

Crompton Appliances said that it was a challenging quarter due to the subdued consumer demand, increased competitive intensity and the transition of fans business to new BEE norms. Fans' transition to new BEE norms was managed smoothly without any disruption. While the pumps business continued to face significant headwinds, the company has initiated actions to strengthen its product portfolio through the implementation of a new brand architecture and strategic pricing actions, which have started showing promising results.

Which is a better stock for the long term?

Praveen Sahay - Research Analyst, Prabhudas Lilladher, prefers Havells India over Crompton Consumer for long term. This is mainly on account of 1) diverse product portfolio, 2) amongst top 3 players in most product categories 3) focus on innovation to continuously drive brand affinity and 4) expanding distribution reach with a focus on the untapped rural market (through rural vistaar project covered 40,000 outlets in FY22 and planned opening of >1000 Utsav stores by FY23), he explained.

However, he noted that Crompton has recently acquired Butterfly to drive growth in the crowded appliance business and its existing business of pump/lighting facing competitive intensity. But only the fan segment will get benefit from the BEE norm change, which is expected to accelerate the market shift from unorganised or regional players to branded players, he added.

Vinit Bolinjkar - Head of Research - Ventura Securities, on the contrary, prefers Crompton.

Recently, Crompton announced a merger with its south India-focused subsidiary Butterfly Gandhimati Appliances Ltd. (BGAL), which it acquired in 2022. The Merger will i) unlock various revenue and cost synergies, ii) increase product innovation, iii) enhance distribution. Further, it will enable Butterfly to better leverage the pan‐India reach of Crompton, integrate more closely with Crompton’s consumer appliances business, and tap cross‐selling opportunities, said Bolinjkar. Crompton is also the market leader in fans, and residential pumps with over 20 percent market share in both categories, he added.

Havells, on the other hand, as per the expert, is struggling with the consumer segment - all of the categories witnessed lower YoY growth during Q3FY23 (ECD: 5 percent, Lighting: 3 percent, switchgear: 4 percent) while B2B and B2G segment fared well and saw demand uptick. Margins remain under pressure owing to high-cost inventory and market competitiveness, he added.

Suman Bannerjee, CIO, Hedonova, believes that both companies have good long-term growth prospects. "Havells has a higher B2B sales mix, which could provide stability during economic downturns. However, Crompton Greaves is the market leader in Fans and amongst the Top #3 brands in Pumps, LED Lighting, and Geysers. Credit Suisse has a neutral rating on Crompton Greaves, citing limited growth potential in their existing portfolio compared to peers. Ultimately, the decision on which stock is better for the long term would depend on an investor's individual investment goals, risk tolerance, and portfolio diversification strategy," he said.

Nirav Karkera, Head of Research at Fisdom also likes both stocks.

"Havells and Crompton Greaves Consumer Electricals Ltd. (CGCEL) are two leading companies in India's electrical and consumer goods industry. While the third quarter of the fiscal year 2023 presented some challenges for both companies, their long-term prospects remain positive. Havells experienced a dip in performance due to moderation in consumer demand, while CGCEL faced a decline in business performance due to a decrease in demand for its main product categories. Despite these challenges, both companies remain optimistic about the future and are committed to investing in R&D, innovation, and marketing initiatives to drive growth and profitability. Additionally, Havells' improved distribution network and completion of its appliances portfolio, and CGCEL's recent merger with its subsidiary Butterfly Gandhimati Appliances Ltd. (BGAL) are expected to bring revenue and cost synergies, making them potential investments worth considering," he explained.