BoB Capital Suggests Buy This Mid Cap Consumer Electricals Stock For 43% Potential Upside

BOB Capital Markets Ltd, a leading brokerage firm, published a report on Crompton Greaves Consumer Electricals Ltd., given a buy rating for a target price of Rs 500. Crompton Greaves Consumer Electricals Limited is a mid-cap Indian electrical equipment company based in Mumbai, India. The company's leadership maintained in fans and pumps, while being a top player in lighting. Butterfly Gandhimati acquisition to strengthen adjacency offerings.

Stock Outlook

CMP	Target Price	Potential Gains
Rs 349.85	Rs 500	43.00%

On Friday 1 July 2022, it gained nearly 2.84% and ends at the current market price (CMP) of Rs 349.85 per share. The stock's 52-week low is Rs 312 per share recorded on 17 June 2022, while the 52-week high is 512.80 per share, recorded on 16th September 2021. The PE ratio is 38.32, and the P/B ratio is 8.69. The EPS is Rs 9.13, and ROE is 23.57%. 

Potential Gains - The company could witness a potential upside of 43% considering the current market price and the Target price.

Returns - The stock has done well in terms of returns on investment over the past five years, rising by a whopping 54.79%. It has given 50.8%retruns over the past three years. However, it has given 18.54% of negative returns in 1 year. Its share price moved up nearly 1.61% in the previous week. However, it has also given negative returns of 3.45% in the past 1 month.

 

Butterfly Gandhimati to help increase presence in adjacency products

FY22 Crompton completed acquisition of 55% stake Butterfly Gandhimati for Rs14 bn (subsequently hiked to 81% following its open offer in Q1FY23). Butterfly is amongst the top three kitchen and small domestic appliances players in India. Management has stated it would be focusing on prioritizing revenue growth over margin and anticipates operating leverage to drive EBIT margin. With this acquisition, Crompton is enhancing its offerings in adjacent products, with an advantage of leveraging its existing distribution network.

5-dimensional growth strategy

The company has devised a growth strategy to achieve its long-term strategic growth through Branding, Portfolio, Go-To-Market Reach, Operational and Organizational focus.

Project Unnati through its design optimization, commercial negotiation, and operational efficiency via in-house manufacturing has achieved a cost savings of Rs2 bn in FY22 (3.8% of revenue). Notably, company has achieved cost saving of Rs5bn over FY20-FY22.

Increase in Debt, mainly led by acquisition

The company's Net Debt increased to Rs 6.9 bn from Net cash of Rs 1.3 bn in FY21, primarily due to acquisition of Butterfly. Net Debt/equity stood at 0.3x. Pertinently, return ratios were impacted, but we believe that it should mean revert by FY24 as Butterfly Gandhimati becomes earnings accretive.

Brokerage Suggests Buy For Target Price of Rs 500/share

According to the BoB Capital Markets, "Crompton was able to navigate FY22 well due to its cost-saving program, product mix improvement, and calibrated pricing. As a part of building its adjacent products, it acquired Butterfly Gandhimati in FY22. Its leadership position continued in fans segment, while lighting saw subdued demand in B2B lighting partly offsetting double-digit growth in B2C segment. Project Unnati aimed at aggressive cost cutting led to the savings of Rs2 bn (3.8% of FY22 revenue). Efforts towards brand building, R&D, scaling up distribution network should reinforce its market position in fans and pump division. Maintain BUY with a Target Price of Rs 500."

About - Crompton Greaves Consumer Electricals Ltd

Crompton Greaves Consumer Electricals Ltd are one of the leading consumer companies in India with a 90+ years old brand legacy. As of February 2016, we are an independent company under professional management and have 2 business segments - Lighting and Electrical Consumer Durables. Company market its products under the "Crompton" brand name in India and select export markets.

 

Disclaimer

The stock has been picked from the brokerage report of BOB Capital Markets Ltd. Greynium Information Technologies, the Author, and the respective Brokerage House are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before taking any investment decision.