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Buy Crompton Greaves Consumer Electricals; target of Rs 533: Prabhudas Lilladher

Prabhudas Lilladher is bullish on Crompton Greaves Consumer Electricals has recommended buy rating on the stock with a target price of Rs 533 in its research report dated February 23, 2022.

February 24, 2022 / 12:04 PM IST
 
 
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Prabhudas Lilladher's research report on Crompton Greaves Consumer Electricals

Crompton’s acquisition of controlling stake (upto 81%) in Butterfly – a leading Kitchen Appliances player will help accelerate its long-term strategic goal of becoming a leading player in the small domestic appliances segment. Leveraging its capability in driving efficiencies and GTM improvements, management expects to drive synergies across the business and expects the acquisition to be EPS neutral/ accretive in FY23/ FY24. We believe acquisition will be margin dilutive in FY23 as we bake in Rs10bn borrowings to fund the acquisition. However, broad based product portfolio and higher scale in Kitchen appliances business will provide decent returns over long term. CROMPTON continues to remain our preferred bet given 1) market share gains across core categories of Fans, Pumps & LED lights 2) sustained investments in LT initiatives (brand building, GTM, innovation, business processes & teams 3) well defined plan of entering & scaling up new categories (Water Heaters, Air Coolers, Mixer-Grinders) and 4) strong balance sheet (Dec21 net cash: Rs10.8bn).

Outlook

We estimate 16.4% PAT CAGR over FY21-24 and assign a target price of Rs533 @ 42xDec23 EPS. We shall incorporate impact on our earnings upon consummation of transaction. Maintain BUY.