Buy Butterfly Gandhimathi Appliances Ltd For Target Rs. 1620 - ICICI Direct
Stake sale to provide larger canvas for Butterfly brand
About the stock: Butterfly Gandhimathi (BGAL) is one of the leading manufacturers of kitchen & electrical appliances in India and sells its products branded as ‘Butterfly’.
* The company is a market leader in India for SS LPG stoves & table top wet grinders and major supplier of mixer grinders & pressure cookers
* Over the last three years, BGAL has enhanced its focus on modern trade/online distribution channels to capture higher revenue growth
Event: Stake sale to Crompton Greaves Consumer Electricals (CGCEL).
* Butterfly Gandhimathi (BGAL) has approved sale of 55% stake held by promoter for a consideration of | 1410 crore (including trademark cost of | 30 crore) to Crompton Greaves Consumer (CGCEL). The deal values the company at | 2526 crore (1.7x FY24E EV/sales, 25x FY24E earnings)
* CGCEL will also have to launch mandatory open offer to the public shareholders of Butterfly, for acquiring up to 26% stake in Butterfly at a price of | 1,433.90 per equity share, aggregating up to | 667 crore. The total acquisition cost (including open offer) would be up to | 2,077 crore
* CGCEL will also acquire trademark rights for a consideration of | 30.4 crore
What should investors do? Over the last three years, the stock price has appreciated at a CAGR of 75%
* We maintain BUY recommendation on the stock
Target Price and Valuation: We value BGAL at | 1620 i.e. 2x FY24E EV/sales.
Key triggers for future price performance:
* The acquisition would enable BGAL to access CGCEL’s dealer network in new geographies (mostly north India), which will enable it to penetrate these markets faster and accelerate its revenue growth
* BGAL’s appliances business is likely to benefit from CGCEL’s pan-India presence in electrical goods stores
* BGAL has shown consistent improvement in financial performance parameters with working capital days, return ratios getting significantly enhanced in FY21. We expect it to maintain RoCE of ~30%+ in FY24E. We model revenue, earnings CAGR of 18%, 40%, respectively, in FY21-24E
Alternate Stock Idea: Besides BGAL, we also like TTK Prestige.
* TTK Prestige, over the years, has maintained its balance sheet strength with strong cash reserves (~| 500+ crore) and healthy RoIC of 30%+
* We have a BUY rating with a target price of | 1270
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