Buy Call: LKP Securities Sees 40% Upside In Mid Cap Consumer Durables Stock, Target Price Rs 485

LKP Securities sees an upside of 40% in leading Consumer Durables sector stock, Crompton Greaves Consumer Electricals Ltd and recommended investors to buy it with a target price of Rs 485 apiece.

According to the analyst, "Crompton scores well on most key growth levers viz. (1) high revenue contribution (60-65%) from products where it is among the top 3 players (fans, water heaters), (2) strong brand recall with improved premium positioning, and (3) relatively well entrenched distribution and sales presence across the country." Check details below:

1. Crompton Greaves Consumer Electricals Stock Performance & Return

The last trading price of the stock is Rs 347 apiece with 52-week high at Rs 451 apiece and 52-week low at Rs 312 apiece, respectively. The stock has given return of 41% in last 3-years and 33% in last 5-years. It has declined 17% in last 1-year.

The mid-cap company has a market capitalisation of Rs 22,090.67 crore.

2. Fans To Remain A Key Growth Driver

Crompton is the market leader in the Indian fans market estimated at ₹120 bn (organized market at ₹102 bn) and has typically outpaced industry growth over the years led by 1) Premiumization: New launches, thrust on R&D and innovation to evolve premium offerings. 2) Market share gains: +650bps over FY16-22, to ~28% now. 3) Reach expansion. Going forward, rapid adoption of Brushless Direct Current Motor (BLDC) technology (revised BEE norms) and focus on premiumization could sustain higher growth vs. industry.

3. Ramping Up Presence In Small Appliances

In the small appliances segment, Crompton operates in water heaters, air coolers, mixer grinders and other small appliances. Company has scaled up water heaters business well (No.2 player with 15% market share vs. No.7-8 position 3 years back). Air coolers and mixer grinders are the new product categories that it is looking to scale up which should drive 22% CAGR over FY22-25E.

4. Stable Growth In Pumps And Lighting

Crompton is the market leader in residential pumps market (27-28% market share) and should sustain this position given value positioning and innovative product launches. Agri and solar pumps are key growth avenues going forward. Similarly in lighting business, revenue should grow at ~8% CAGR, broadly in line with volume growth with prices stabilizing for industry now.

5. Valuation

According to LKP Securities, "Overall strong focus on profitability and industry leading RoCE and FCF profile as well as numerous initiatives embarked upon by the company (cost control, GTM Distribution etc.) makes us positive. We expect consolidated revenue/ EBITDA/PAT CAGRs of 20%/18%/15% over FY22-25E. We initiate with a Buy with PT of ₹485, valuing Crompton at 34x FY25E EPS."

About Crompton Greaves Consumer Electricals

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

Disclaimer

The stock has been picked from the brokerage report of LKP Securities. 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.