Prabhudas Lilladher Initiates 'Buy' On This Mid-Cap Electricals Stock, Sees Upside Of 42.69%

Prabhudas Lilladher is bullish on Crompton Greaves Consumer Electricals stock, it believes the mid-cap company stock can surge by nearly 42.69%. This Mumbai-based electrical equipment company has recently posted its quarterly numbers, which show that the margins declined. However, the stock-broking firm feels that based on the management guidance, the stock price is trading at a lower valuation currently and would be a good bet for the next 2-3 years.

Fourth Quarter March performance
Despite the growth of 15.7% in sales, Crompton Greaves Electricals reported a contraction in margins and even the profit after tax was down by 30.8% year-on-year. Revenues grew 15.7% YoY to Rs17.9 billion, gross margin contracted 10bps YoY to 31.5%.

EBITDA declined by 7.6% YoY to Rs 2.1 billion with a margin contraction of 300bps YoY to 11.8%, due to a significant increase in other expenses (12.5%sales vs 9.7% sales in Q4FY22) and emp. expense (up 55.7% YoY, 7.3%sales vs 6.7%sales).

The expenses were mainly led by investment in A&P (3.9%sales in Q4FY23 vs 2.0% in Q4FY22), hiring a team for building capability, strengthening manufacturing ability, and alternate channels.

PAT declined by 30.8% YoY to Rs1.3 billion, indicating the stock broking firm.

Additionally, it is seen that the company board announced a dividend of Rs 3 per share v/s Rs 2.5 per share in the previous year resulting in a 40% payout ratio.

Company Guidance
The brokerage house in the research note mentioned that the future growth drivers will be kitchen appliances, Butterfly, lighting business, & large appliances. The company has guided that it is currently working on stabilizing its pump/light business with competitive pricing, the launch of new SKUs, and GTM in the lighting segment, which will impact its margin.

Valution & Rating
Parbhudas revises Crompton Electricals FY24/FY25 earnings, estimating it downward by 6.1%/8.1% by factoring the company's guidance in its core portfolio, which is expected to report lower margins against historical levels along with lower growth guidance in Butterfly.

Further, the stock-broking firm believes that the stock will be range bound considering growth & margin guidance given by management. However, it is trading at a lower valuation and would be a good bet for the next 2-3 years, considering the opportunity of re-rating with management change as the Crompton franchise has a strong market share in fans and pumps.

"We estimate Sales/EBITDA/Adj. PAT CAGR of 10.8%/14.7%/20.7% over FY23-25E and revise our target price to Rs 371 at 35x FY25 EPS (Rs406 earlier). Maintain BUY.", the broking firm added.

Stock Movement
The share price of Crompton Greaves Electricals stock rallied by 2.46% to end at Rs 266.05 in Tuesday's trade. In the last one year, the share has steeply fallen by 20.94% but in the last three years, it has surged by 25.73%.

Disclaimer
The stock has been picked up from the brokerage report of Prabhudas Lilladher. Greynium Information Technologies, the author or the brokerage firm will not be liable for any losses caused as a result of decisions based on this write-up. Goodreturns.in advises users to consult with certified experts before making any investment decision.