Prabhudas Lilladher's research report on Crompton Greaves Consumer Electricals
We reiterate our positive stance on CROMPTON given its strategy of investing in long term strategic initiatives like 1) distribution & GTM initiatives 2) Creating new legs of growth in large durable categories and 3) sustained product innovations to consolidate its position in Fans, Lighting and Pumps. CROMPTON is creating & scaling up new legs of growth in Geysers, Air Coolers and now with Mixer-Grinders (Rs65bn category). We believe margins in lighting have bottomed out (declined 540bps to 6.1% in FY20) as price stability will enable 240bps margin expansion (8.5%) and 63% growth in EBIT over FY20-23 with a scope to still surprise positively. We believe CROMPTON is better placed than peers given 1) low discretionary nature of products (fans, lighting, mixer-grinder, pumps) 2) sustained growth potential in core categories of fans & pumps 3) Well defined plan to scale up new segments like Geysers, Air Coolers & Mixer-Grinders and 4) strong balance sheet (FY23 Net cash of Rs21.1/share, ROE of 25.9% and ROCE of 32.8% and FCF/Adj PAT of 88%).
Outlook
Although we expect Havells to command premium given higher scale and product range, expect valuation gap to narrow overtime. We estimate 13.8% PAT CAGR over FY20-23 and assign a target of Rs308 at 30xFY23 EPS (Rs288/-@30x Sept22 EPS earlier). BUY.
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