Keynote Capitals Assigns Buy On This Midcap Stock, Strong Execution Record Affirms Future Growth

Keynote Capitals initiate coverage on Crompton Greaves Consumer Electricals Ltd. (CGCEL) With a BUY Rating and assigns a target price of Rs. 424/share to the stock. The brokerage with the assigned target price, claims a potential upside of 20% from its current level. It is a mid cap Consumer Electricals sector company having a market capitalisation of Rs 22,459.48 crore.

CGCEL is India's largest manufacturer of fans, with a 28% market share. The Company has also claimed a position in the top three players in almost all segments, namely, fans, pumps, lighting, etc., where it is present with its spot-on execution capabilities. Recently, CGCEL acquired Butterfly Gandhimathi Appliances Ltd. (BGAL) as a part of its growth strategy and plans to command a meaningful position in the kitchen appliances business.

CMP, 52-Week Low & High, and Returns

The stock of CGCEL last traded at Rs 353.20/share on NSE, gaining 1.15% compared to its previous close. Its 52-week high level is Rs 451.95, recorded on 14 January 2022 and its 52-week low level is Rs 312 recorded on 17 June 2022, respectively.

The stock has given mixed returns on investments over the past 5 years. It surged 0.9% in 1 week. In the past 1 month, it fell by 4.07% and in the past 3 months, it fell by 13.14%, respectively. In the past 1 year, the stock has given 14.82% negative returns. It gave 45.47% positive returns in the past 3 years and 31.59% positive returns in past 5 years, respectively. 

Gaining Market Share and Maintaining Leadership

CGCEL is uncompromising for the top 3 positions that colonize the majority market in any consumer business. CGCEL is the leader in ceiling fans and residential pumps, with a 28% and 27% market share, respectively. Further, it holds the 3rd largest position in LED lights and geysers with 8% and 13% share, respectively. This unwavering focus on attaining a spot in the top 3 in all product categories and its powerful strategic execution has resulted in CGCEL gaining market share from unorganized players.

Additional Source of Robust Growth - BGAL

The Butterfly Gandhimathi Appliances Ltd (BGAL) acquisition in FY22 will be a growth accelerator and create synergies for both entities. CGCEL will enable BGAL to increase its market beyond South India and significantly improve its operating margins from ~7% in FY22 to at least low double digits. On the other hand, BGAL will empower CGCEL with its brand, production, and R&D facilities built in the kitchen appliance segment.

Organic Growth Far From Exhaustion

CGCEL is tapping alternate channels like the rural market and e-commerce, which accounts for 12% of revenue as of Q1FY23. The Company has employed micro-finance options and 250 channel partners in the rural market. Besides this, CGCEL has also entered the large appliances subsegment with products like chimneys, dishwashers, etc., which will drive future growth. Apart from this, the Company is also open to entering new adjacencies. In addition, the premiumization of products across the segments activates triggers for solid growth.

View & Valuation

Keynote Capitals has said, "We initiate coverage on Crompton Greaves Consumer Electricals Ltd. with a BUY rating and a target of Rs. 424 (based on SOTP valuation for FY24E). Primary growth drivers will be innovation-backed growth in the existing business and potential synergies with BGAL. The Company can target multiple areas to create value from the acquisition in the short to medium term. Effective execution by the management in the past builds our confidence that CGCEL will be able to accomplish outstanding work with BGAL coming under its fold and increasing its Total Addressable Market (TAM)."

Disclaimer

The stock has been picked from the brokerage report of Keynote Capitals. 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 consult with certified experts before making any investment decision.