Buy Crompton Greaves; target of Rs 271: Emkay Global Financial

Emkay Global Financial's report on Crompton Greaves

Better-than-expected recovery in June led to a 12% beat over consensus revenue estimates. June saw strong recovery in Fans, Pumps, Appliances and the Consumer Lighting segment. Crompton continued to gain market share in Fans and B2C lighting. Efficiency improvement and increased efforts in driving cost-optimization programs offset adverse operating leverage and restricted EBITDA margin decline. Gross margin improved 88bps qoq, while it remained stable yoy. Strict working capital control helped cash generation in Q1. As per management, demand in July’20 is trending well, showing improvement mom, although the B2B segment remains under pressure. Intermittent lockdowns pose a threat to sustained demand recovery.

Outlook

Market share gains and stable margins despite a sharp decline in revenue are key positives. The strong beat in Q1 numbers makes us raise FY21E EPS by 10.6%. Maintain Buy with a revised TP of Rs271 (32x Sept’22E EPS). We are OW on Crompton in EAP.

Crompton Greaves 28072020-emkay

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