The year 2022 looks set to end on a disappointing note for Crompton Greaves Consumer Electricals stock.
As of December 19, the stock is down almost 21 percent this year while the equity barometer Sensex has gained 6 percent in the same period. The stock hit its 52-week high of ₹451.50 on January 14, 2022; at present, it is 23 percent down from that level.
Brokerage firm LKP Securities has initiated coverage on the stock with a buy recommendation. The brokerage firm has a 12-month target price of ₹485 (valuing it 34 times FY25E earnings per share) which is a 40 percent upside from the stock's December 19 closing of ₹347.40 on BSE.
The brokerage firm is bullish on the stock because of its market leadership position in core categories (fans, pumps), a widespread distribution network, and a track record of product innovation and premiumization, which has been aided by a strong focus on investments in brand, products, and distribution.
"Crompton is well-positioned on most key growth levers, such as (1) high revenue contribution (60-65 percent) from products where it is among the top three players (fans, water heaters), (2) strong brand recall with improved premium positioning, (3) relatively well-entrenched distribution and sales presence across the country, and (4) robust financial track record with sector-leading margins, return ratios and FCF (free cash flow) generation," said LKP.
Moreover, LKP Securities highlighted that the recent acquisition of Butterfly Gandhimati is positive for Crompton Greaves from the medium to long term and sets the stage for its next leg of growth. This acquisition, as per the brokerage firm's estimates, will help Crompton strengthen its position in the nearly ₹10,000 crore kitchen and small domestic appliances categories.
"We estimate consolidated topline to grow at nearly 20 percent CAGR over FY22-25E and estimate company’s OPM (operating profit margin) at nearly 12 percent in FY23E gradually improving to over 13 percent by FY24-25E, as synergies kick in," said LKP.
The brokerage firm expects its proven capability in portfolio premiumization, cost efficiencies, and go-to-market (GTM) improvements to enable synergies across Butterfly Gandhimati’s business.
LKP believes product and distribution synergies in the medium to long term will lead to double-digit growth with improvement in Butterfly Gandhimati margins.
LKP underscored it is positive on the stock because of its strong focus on profitability and industry-leading RoCE (return on capital employed) and FCF profile as well as numerous initiatives taken by the company such as cost control, GTM Distribution, etc.
LKP Securities expects Crompton's consolidated revenue, EBITDA and PAT CAGR of 20 percent, 18 percent and 15 percent, respectively, over FY22-25E.
On the fundamental front, the stock appears to be a long-term buy for in the short term, technical indicators are giving mixed signals.
Jigar S. Patel, Senior Manager - Equity Research, Anand Rathi Share and Stock Brokers pointed out that Since September 2021, this counter has been making lower highs and lower lows structures, which resulted in a 39 percent correction.
"From June 2022 to September 2022, we saw a pullback from ₹309 to ₹429 which was a 0.618 percent retracement of its previous down move. At the current juncture, this stock is trying to make a 1:1 N wave (Ichimoku wave theory) down-move which is expected to get completed near ₹300-305," said Patel.
"On the indicator front, weekly MACD has formed a bearish cross near the zero line while weekly stochastics is hinting at more weakness. So, fresh buy is not advised. One should wait for the ₹305 -310 zone because the consolidation is expected in this zone and also, it is one of the historical support," Patel said.
Vaishali Parekh, Vice President - Technical Research, Prabhudas Lilladher underscored that the stock has corrected from ₹428 to ₹340 levels, finding support near the long-term trend line pattern.
Also, it has completed a 0.786 percent (near ₹336) retracement level of the recent correction, and a decisive move past ₹360 would further strengthen the trend, Parekh believes.
"A decisive breach and close below the ₹335 level would initiate a new downward movement to around ₹310," said Parekh.
Disclaimer: The views and recommendations given in this article are those of individual analysts and broking firms. These do not represent the views of MintGenie.
