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Buy This Mid Cap Consumer Durable Sector Stock, Target Price Rs 410: Edelweiss Wealth Research
Edelweiss Wealth Research has placed a 'buy' call on Crompton Greaves Consumer Electricals Ltd (CGCEL). The brokerage sees a potential upside of 16% in 12 months with a target price of Rs 410 per share. CGCEL is a mid-cap consumer durable sector company with more than 90 years old brand legacy. It has a market cap of Rs 22,478.56 crore as on 28 Oct' 22.
The brokerage in the report has stated, "CGCEL's revenue came in at INR 1,700 cr (up 23% YoY), ~6% below the our estimate of INR 1,810 cr on account of the strong base in Q2FY22 and high retail inflation creating weak consumer demand. The alternate channel continued to deliver exponential growth; its contribution to overall sales increased to 15% (vs. 11% in Q2FY22). Gross margin improved 10bps YoY to 32.1% (up 70bps QoQ), ahead of our estimate of 31.2% due to improved product mix and cost optimisation. EBITDA at INR 193 cr (down 10% YoY) was ~21% lower than our estimate of INR245cr. "
Stock Outlook & Returns
On Friday, October 28, the stock closed at Rs 353.50 per share on NSE, 3.64% down from its previous close. The stock recorded its 52-week low on 17 June 2022 at Rs 312 and its 52-week high on 02 November 2022 at Rs 493.20, respectively. The stock has performed well on long-term investments.
The stock has given 5.37% negative returns in 1 week. Whereas, in 1 month 13.09% negative returns and 7.79% negative returns in 3 months, respectively. Over a year, the stock has given 37.92% negative returns. In the past 3 years, it has given 37.92% positive returns and in the past 5 years 61.23% positive returns on investments.
Subdued ECD business on slow channel filling in fans business
The ECD segment posted revenue of INR1,062cr, down 3% YoY (vs. Havells: up 6% YoY), due to slow channel filling in fans business despite robust growth in appliance sales (up 12% YoY), led by mixer grinders (up 15% YoY) and geysers (up 6% YoY). Meanwhile, speciality pumps revenue grew 20% YoY. CGCEL continued to gain market share in premium fan and water heater segments. On a 3-year basis, ECD revenue grew at a CAGR of 10% as against Havells' revenue growing at a 16% CAGR. EBIT margin contracted 390bps YoY to 17.1%, while that of Havells contracted 560bps YoY.
Soft performance in lighting business on flat B2C LED business
Lighting revenue came in at INR270cr, down 7% YoY, lagging behind Havells' revenue (up 12% YoY). Conventional lighting business' revenue declined by 35% YoY, while that of B2C LED business was flattish. The lighting segment's EBIT margin contracted 340bps YoY and 80bps QoQ to 8.0%, while that of Havells contracted by 750bps YoY.
Steady recovery in Butterfly's performance
Butterfly's revenue de-grew by 9% YoY to INR368cr, due to a strategic decision of restructuring the channel mix in favour of retail vs. online to drive a healthy balance sheet across channels and improve overall profitability in the long term. EBITDA stood at INR45cr (down 5% YoY) with margin improvement of 40bps YoY to 12.0%, led by improvement in channel mix and implementation of a cost-saving programme. PAT stood at INR25cr (vs. INR25cr in Q2FY22 and INR13cr in Q1FY23).
Valuation and outlook - maintain BUY rating with target price Rs 410
CGCEL reported weak performance on strong base in Q2FY22 in all fronts, owing to input cost inflation and higher operating expenses, especially for branding. However, CGCEL largely maintained its margins in the past despite the inflationary environment, thanks to its long-term initiatives of GTM strategy, cost-saving measures and leveraging alternate channels. "The company recorded slowdown in fans business in Q2FY23. However, it gained market share in premium fan and water heater segments by expanding its reach and, which we think will continue to benefit CGCEL in the coming years. Butterfly has minimal overlap in the appliance portfolio with CGCEL. Management expects to leverage its strong R&D capabilities to improve Crompton's existing portfolio, driving better growth going ahead. We revise our FY23E and FY24E estimates downwards by 7% and 5%, respectively, and we maintain 'BUY' rating on the stock with a revised TP of INR410 per share," the brokerage has said.
Disclaimer
The stock has been picked from the brokerage report of Edelweiss Wealth Research. 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 making any investment decision.
