Crompton Greaves' consumer biz to grow 15% in FY18: Antique

Antique Stock Broking is positive on Crompton Greaves' de-merged entity —Crompton Greaves Consumer Electrical Limited— which deals in consumer products business, said Dhirendra Tiwari of the brokerage firm.

Speaking to CNBC-TV18, Tiwari said the company is expected to post revenue growth of 12 percent this year and 15 percent the next year.The firm estimates earnings per share (EPS) for the stock at Rs 5 in FY17 and Rs 6 for FY18, he said. Further, reduction in debt and benefits coming from premiumisation of products will improve the company's performance, he added.Below is the verbatim transcript of Dhirendra Tiwari's interview with Latha Venkatesh and Sonia Shenoy on CNBC-TV18.Sonia: How would you approach the demerged entity listing?A: As we have maintained in our previous reports, we are positive on Crompton Greaves Consumer business. Historically speaking, it has maintained a very healthy growth growing at about 15-16 percent compounded annual growth rate (CAGR). Margins have been healthy and if you see the company has uploaded the investment memorandum and according to that the RoE is about 52 percent. We expect the company to grow at 12 percent this year, FY17 and then followed by 15 percent next year. We think the company will be able to maintain or may marginally improve profitability and therefore they can report healthy earnings growth next couple of years time.Based on that, generally speaking if you see consumer products business, they are trading at 30-32 times. So I guess Crompton can attract 25 P/E. So I think based on that, we would assume that stock can probably go to more than Rs 150 in 12 months time post listing.Latha: We believe the stock is going to be called Crompton Consumer. Can you tell us what is the EPS number you are working with? When you said 12 percent growth and 15 percent growth, I assume you meant EPS, so what is the EPS number exactly?A: 12-15 percent is revenue growth. There will be a margin improvement also. There is of course reduction indeed because the company had Rs 500 crore plus debt going to be reducing so these will also have a positive impact.EPS we are looking at Rs 6 for FY18 and FY17 will be less than Rs 5. If you look at Rs 6.1 then at Rs 25, it goes to about Rs 150.Sonia: When you say that there will be an improvement in margins, what number are you looking at because the street has been a bit of a concerned about the fact that the new management will be spending a lot towards brand building, the dealer development etc, so maybe we could see a bit of pressure on margins you think in the near-term?A: Spending to improve the brand and basically to improve the topline is not a concern in my opinion, it is basically a good thing. There is a lot of hidden cost because of composite entity and once you have a separate entities have now in my opinion identified certain costs, which can be brought down. So there is of course opportunity to bring those costs down. So that I think will help overall improved margins.The second thing is that premiumisation. The strategy of the company has been to improve the product portfolio more towards the premium products. So realisation plus bringing down the overhead will basically help improve profitability margins.