Buy Crompton Greaves CE; target of Rs 465: YES Securities

YES Securities' research report on Crompton Greaves CE

Crompton has reported marginally lower than expected revenue with ECD and Lighting segment declining 3% and 7% respectively. Decline in ECD was on back of high base subdued demand environmentfor Fans which were marred by high inflationary environment and de‐stocking by channel as it is moving towards BEE ratings. Gross margins at 32% have come back to its normalized levels, while operating margins were lower as company continues to invest in its long‐term strategic initiatives like R&D innovation center, increased A&P spends and investing in alternate channels. On Butterfly front company transition is happening smoothly and now company is confident of double‐ digit EBITDA margins to be base which can be improved upon. CROMPTON continues to gain market share in key categories like Fans. CROMPTON entry into built‐in kitchen appliances has met with positive response which has been ahead of expectation. We continue to remain positive on the stock and maintain BUY as consolidation of Butterfly, entry into built‐in appliances and investments in alternate channels along with strong impetus on R&D will lead CROMPTON to maintain its industry leading growth. We expect industry leading growth momentum to continue for CROMPTON with significant opportunity to improve on BGAL’s performance and entry into built‐in kitchen appliances We however have trimmed our margin estimates on higher investments on account of developing new business and brand building for BGAL.

Outlook

We now build in FY22‐24E Revenue/EBITDA/PAT CAGR of 23%/19%/11% and arrive at our PT of Rs 465 valuing the company at 42x FY24EPS and maintain our BUY rating.

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