Crompton Vs Voltas: This Is Investec's Consumer Durables Pick

With the upcoming summer season, Investec has picked Crompton Greaves Consumer Electricals Ltd. over Voltas Ltd. within the consumer durables sector. The shift in market dynamics, particularly the challenges faced by Voltas and the growth momentum at Crompton, has prompted this pair trade approach.

With concerns over Voltas' earnings per share estimates and its stiffer revenue base in the coming quarters, coupled with intense pricing competition in the room air conditioner market, the outlook for Voltas seems increasingly uncertain. The brokerage has maintained a 'hold' rating with a target price of Rs 1,610 apiece on the stock.

Voltas’ unitary cooling products revenue base, which showed strong growth in fourth quarter of financial year 2024 and first quarter of this fiscal, will face tougher comparisons from the fourth quarter of this financial year, according to Investec. This growth was driven by a favourable summer season and a one-time boost from inventory filling, as Voltas strengthened its relationship with modern retail chains.

With intense pricing competition and the possibility of an erratic summer season, risks to Voltas' margins remain high. Given these challenges, the valuation for Voltas' UCP business seems overstretched.

In contrast, Crompton, under new management, has made significant strides in boosting growth, and its valuation presents a more favourable risk-reward scenario. Considering that the current valuation is around 40% lower than Voltas, Investec maintains a 'buy' rating with a target price of Rs 550 per share.

Crompton has been actively improving its growth prospects, which means increased advertising and promotions, organisational restructuring, and product development, have already shown positive results, with the company’s electrical consumer durables revenue consistently outperforming its peers.

Crompton’s lighting segment has also returned to growth after several years of declines, benefiting from the pickup in real estate construction, the brokerage said. As Crompton continues executing its strategy, there is potential for a PE re-rating, narrowing the valuation gap with peers like Havells India Ltd., which trades at a significantly higher valuation.