Buy Crompton Greaves Consumer Electricals Ltd For Target Rs.325 - ICICI Securities
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We believe Crompton reported stable performance in Q4FY23 considering (1) there was weak demand for white goods and durables due to steep inflationary pressures, (2) unseasonal rains impacted the off-take of fans and coolers in North India and (3) there was transition in fans to BEE norms from Jan’23. We also remain enthused by market share gains in premium fans and water heaters. We believe market share gains in fans and synergy benefits post-merger of Butterfly will likely be key triggers for improvement in earnings and stock price performance.
We model Crompton to report earnings CAGR of 23.2% over FY23-25E and remain positive on Crompton given established brands and distribution network. We maintain BUY rating with DCF-based target price of Rs325 (implied P/E of 29x on FY25E earnings).
* Q4FY23 results: Crompton reported revenue growth of 15.7% YoY. However, EBITDA and PAT were down 7.6% and 27.5%, respectively. Standalone revenues were up 4.6% YoY. While gross margin expanded 170bps with correction in commodity prices, EBITDA margin contracted 297bps due to higher investments.
* Segment-wise performance: Electrical Consumer Durables (ECD) segment reported growth of 7.7% YoY but Lighting revenues declined 12.1% YoY. Premium ceiling fans grew 24% YoY and BLDC fans grew 2.5x YoY establishing Crompton as no.2 player in BLDC fans. Appliances reported revenue growth of 42% YoY. Pumps also reported healthy growth YoY led by pricing actions. The company improved market shares in premium fans and water heater categories.
* Improvement in Butterfly business: Butterfly registered revenue growth of 10% in FY23 with improvement in profitability. In-spite of the transition, the company has held on to the market shares across categories. Multiple cost saving initiatives helped to cost savings of Rs200mn in FY23. We model Butterfly to gain market share as well as improve margins in FY24-25E.
* Maintain BUY: We model Crompton to report PAT CAGR of 23.2% over FY23- FY25E and RoE > 20% in FY24-FY25E. We remain positive on Crompton due to its competitive advantages and growth opportunities. We maintain BUY on the stock with DCF-based TP of Rs325 (implied P/E of 29x FY25E EPS).
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