After a 16 percent decline in 2022 YTD, brokerages now see recovery in Crompton Greaves Consumer Electricals (CG Consumer). While Phillip Capital sees a 30 percent upside and has a target price of ₹470 for the stock; HDFC Securities have a target price of ₹475, indicating an upside of 32 percent. Both the brokerages maintained 'buy' calls for the stock.
For the March quarter, the firm reported a 29.11 percent decline in its consolidated net profit at ₹176.55 crore versus ₹249.08 crore in the same period year ago. Its revenue from operations rose 1.69 percent to ₹1,547.92 crore during the quarter under review as against ₹1,522.05 crore in the corresponding period of the last fiscal.
While its revenue from the electric consumer durables segment was up 3.17 percent to ₹1,230.90 crore from ₹1,193 crore in Q4 FY21; its revenue from lighting products dipped 3.65 percent to ₹317.02 crore (Q4FY22) from ₹329.05 crore (Q4FY21).
However, for the full fiscal ended March 2022, its net profit dropped 6.2 percent at ₹578.38 crore, compared to a net profit of ₹616.65 crore in the previous fiscal. Revenue from operations was at ₹5,394.11 crore in FY22, up 12.29 percent from ₹4,803.51 crore in FY21.
According to Phillip Capital, the company's business was impacted in January, however, February and March maintained its trajectory of growth.
"Growth in all product categories excluding Pumps and B2G lighting. Cost reduction, mix improvement and pricing actions have mitigated commodity-led input prices. It also continued to gain market share in fans and appliances," it added.
Meanwhile, HDFC Securities also noted that Crompton's Q4FY22 revenue was a miss but the EBITDA margin was in line. Similar to peers, the company too was impacted by Omicron in Jan and slow channel filling, however, Feb/March saw double-digit growth along with healthy secondary growth, it added.
CG Consumer also acquired a controlling stake in Butterfly during the quarter. It acquired the Chennai-based Butterfly Gandhimathi Appliances Ltd. (Butterfly) for a total consideration of ₹2,076.63 crore. Butterfly is a leading kitchen and small domestic appliances portfolio that includes mixer grinders, table-top wet grinders, pressure cookers, stainless steel vacuum flasks, LPG stoves and non-stick cookware. It is amongst the top 3 pan-India kitchen and small domestic appliances players, the firm said in a press release.
In the short term, Phillip Capital expects this acquisition will have a negative impact on earnings as CG has to take a debt of ₹1200 crore,
reduction in other income and cost synergies will take 1-2 years to improve margin. Meanwhile, in the medium to long term, it expects product and distribution synergies to lead to double-digit growth with an improvement in margin.
HDFC Sec also pointed out that Crompton remained one of the best among peers in cost control, and hence, despite several headwinds.
"We remain confident of healthy growth for fans, appliances and B-C lighting. However, a part of the portfolio will continue to see challenges in the near term. We cut our EPS estimates by 3 percent/3 percent for FY23/24. We reduce our target P/E multiple to 38x (from 42x) on FY24E to derive a target price of ₹475," said HDFC Sec.
Comparing the stock to its peers, Phillip Capital noted that the firm is currently trading at 38x/30x PE on FY23/FY24 numbers versus Havells’ at 55x/45x.
"The valuation gap with peers will narrow, as it will show healthy revenue growth and improvement in margins, over the next two years majorly driven by: 1. Fans: Moving up in the premium segment; better realizations. 2. Appliances: Gaining market share and new product addition - Butterfly. 3. Lighting portfolio stabilizing; margins will improve with lower pricing pressure. 4. Cost-optimization program improving margins (of Butterfly)," it explained.
Phillip Capital also added that CG Consumer has a successful asset-light business model, lower working capital requirement, and higher asset sweating, which results in healthy cash flow (help in paying off the debt).
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie.