Buy This Mid Cap Consumer Electricals Stock For 37% Gain, Reported 182% YoY Growth In Rural Channel

ICICI Securities in its latest report on Crompton Greaves Consumer Electricals Ltd for a target price of Rs 504/share. Crompton has largely maintained its profitability in a tough year (FY22), maintaining healthy revenue growth and market shares in almost all segments. Its timely price hikes, improvement in revenue mix and cost-saving initiatives (Rs 2.03bn via project Unnati) were chief reasons for retaining profitability. While ECD business grew in the mid-teens during the year, decline in B2G lighting dragged the overall lighting revenue growth. The company now commands an all-time high market share in fans. Further, rural channel growth of 182% YoY in FY22 indicates strong returns on its channel expansion investments.

Stock Outlook

The current market price (CMP) of Crompton Greaves is Rs 368.70/share. The 52-week low of the stock was recorded on 17th June 2022 at Rs 312 per share, while the 52-week high was recorded on 21st September 2021 at Rs 512.80/share. The share of the company is trading at Rs 55.90 above the 52-week low levels and Rs 144.90 below the 52-week high of the stock. The PE ratio is 40.38. PB ratio is 7.23. Face value is 2. EPS is Rs 9.13. ROE is 23.57%.

The stock has gained nearly 5.42% in the last 1 week, and 8.22% in the past 1 month. However, in the past one year, the stock price has fallen 16.09%. Despite, the fall, it has gained almost 63.03% in the past 3 years and 67.29% in 5 years, respectively.

The stock has the potential to gain 37% in 12 months based on the Current Market price & the estimated Target Price of the stock. 

Five-dimensional growth strategy

Crompton has identified five pillars that will enable it to drive growth. The company aims to achieve excellence in (1) brand, (2) portfolio, (3) go-to-market, (4) operations and (5) organisation.

Segment-wise performance

Electrical Consumer Durables (ECD segment reported strong revenue growth of 14.7% YoY; however, lighting segment revenue grew only 3.5% YoY. Fans reported strong growth of 19% YoY. While B2C lighting grew YoY, B2B and B2G lighting continued to face a slowdown. Pumps business was also affected due to prolonged monsoon during the year.

Market share gains and distribution expansion

The company gained ~200bps market share in fans segment and now operates at its all-time high market share. It also gained share in ceiling lights. We note the company's investment in rural channel has helped it acquire market shares in rural markets too. Rural channel and ecommerce reported 182% and 39% YoY growth, respectively, in FY22. We model strong growth in rural market to continue in FY23-24. 

Healthy profit margins achieved due to cost-saving initiatives

Crompton's efforts to save costs (via project Unnati), focus on premiumisation and timely price hikes helped it protect its profitability in an unfavourable inflationary environment. It saved Rs2.03bn through project Unnati in FY22. 

 

ICICI Securities suggests buy for a target price of Rs 504/share

The brokerage said, "We model Crompton to report PAT CAGR of 4% over FY22-FY24E and RoE of 26.2% in FY24E. We remain positive on the company's business model due to its competitive advantages and growth opportunities. We maintain BUY on the stock with DCF-based Target Price of Rs 504 (implied P/E of 51x FY24E EPS)."

About - Crompton Greaves Consumer Electricals Ltd

Crompton Greaves Consumer Electricals Ltd (Crompton Greaves) are one of the leading consumer electrical companies in India with more than 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 ICICI 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.