Buy This Multibagger Stock For A Target Price of Rs. 1620 In 1 Year

Butterfly Gandhimathi Appliances is a small-cap company with a market capitalization of Rs 2,467.20 crore. The firm operates in the CDGS (Consumer Discretionary Goods and Services) sector, selling a variety of kitchen and electrical equipment in India. The company's stock has risen from Rs 570.10 on February 25, 2021 to Rs 1,379.90 on February 24, 2022, 3:30 p.m. IST, resulting in a multibagger return of +809.80 (142.05 percent) in a year. On a year-to-date (YTD) basis, the company's shares have increased by +170.30 (14.08 percent) and have increased by +650.15 (89.09 percent) in the last six months. In one month, the stock has gained +189.55 (15.92%), and in the past five days, it has gained +269.90 (24.32%). Following Crompton Greaves Consumer Electricals (Crompton)'s bid to purchase a 26 percent equity stake in the company for Rs 1,433.90 per share, ICICI Securities has issued a buy call on the stock with a target price of Rs 1620 in the next 12 months.

Highlights of stake sale to Crompton Greaves Consumer Electricals (CGCEL) as per the brokerage

• Butterfly Gandhimathi (BGAL) has approved sale of 55% stake held by promoter for a consideration of Rs 1410 crore (including trademark cost of Rs 30 crore) to Crompton Greaves Consumer (CGCEL). The deal values the company at Rs 2526 crore (1.7x FY24E EV/sales, 25x FY24E earnings).
• CGCEL will also have to launch a mandatory open offer to the public shareholders of Butterfly, for acquiring up to 26% stake in Butterfly at a price of Rs 1,433.90 per equity share, aggregating up to Rs 667 crore. The total acquisition cost (including open offer) would be up to Rs 2,077 crore.
• CGCEL will also acquire trademark rights for a consideration of Rs 30.4 crore.

Key investment rationale for Butterfly Gandhimathi (BGAL) according to ICICI Securities

• The acquisition would enable BGAL to access CGCEL's dealer network in new geographies (mostly north India), which will enable it to penetrate these markets faster and accelerate its revenue growth.
• BGAL's appliances business is likely to benefit from CGCEL's pan-India presence in electrical goods stores.
• BGAL has shown consistent improvement in financial performance parameters with working capital days, return ratios getting significantly enhanced in FY21. We expect it to maintain a RoCE of ~30%+ in FY24E. We model revenue, earnings CAGR of 18%, 40%, respectively, in FY21-24E.

Buy for a target price of Rs 1620

The brokerage has highlighted that "Over the last three years, the stock price has appreciated at a CAGR of 75%. We maintain a BUY recommendation on the stock. We value BGAL at Rs 1620 i.e. 2x FY24E EV/sales."

Inability to pass on higher RM costs and extended restrictions on trade can lower sales are the key risks of the stock as per the brokerage which investors should be aware of.

Disclaimer

The stock has been picked from the brokerage report of ICICI Securities. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.