Crompton Greaves CE Shares: This Brokerage Sees 20% Upside

Broking Firm Emkay Global is bullish on the stock of Crompton Greaves CE and has recommended buying the stock with a price target of Rs 480 on the stock, against a current market price of Rs 402. This means the target price of the stock, implies gains of nearly 20 per cent.

"Crompton Greaves Consumer Electricals delivered strong performance in Q4, with EBITDA beating our expectations by 6%. ECD segment revenues saw a healthy 2-year Compounded Annual Growth Rate of 17%, driven by growth across product categories and channels, market share gains in fans and rural expansion.

After many challenging quarters, the lighting segment registered 15% yoy growth in revenue, supported by 23% volume growth in the B2C business. Despite weak B2G business, EBIT margins expanded by 841 basis points, year- on year to 16.1%, driven by cost optimization," the broking firm has said.

According to Emkay Global Financials, currently, channel inventory for Fans is higher than last year. A gradual recovery in revenue is expected from Q2, similar to that of last year. Margins should remain impacted for 1-2 quarters due to commodity headwinds and the lag in implementing price increases.

"We reduce FY22-23E EPS by 2-4% as we factor in lower revenues and higher costs due to prevailing commodity inflation. Superior performance vs. peers and favorable valuations keep us constructive. Retain Buy with a revised target price of Rs 480 (43x FY23E EPS) vs. Rs 490," the broking firm has said.

According to Emkay Global, the management has reiterated its strategy to focus on new product launches, distribution reach expansion across the categories, full-fledged product portfolio ramp-up in appliances, and cost optimization to mitigate commodity price impact. The Lighting segment has seen a structural change with stabilization in pricing, auguring well for sustained double-digit margins going forward.

"Commodity inflation should be offset through price increases, premiumization and cost savings. The company is targeting to achieve cost savings of Rs1.8 bn in FY22 under project 'Unnati.' Majority of these savings will be reinvested for future growth through enhanced Research & Development investments, brand strengthening, distribution expansion and accelerated pace of new product launches, in our view," the firm has said.

The key risks according to Emkay Global would be delayed demand recovery, market share losses, slow execution of new product launches, supply-chain disruptions, and sustained commodity price inflation.

The shares of Crompton Graves Consumer Electricals were last seen trading at Rs 402.