Buy Crompton Greaves Consumer Electricals Ltd For Target Rs.516 - Religare Broking
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Synergy opportunity with BGA to drive growth
Revenue growth led by BGA: Crompton reported its Q2 revenue at Rs 1,700 Cr registering a growth of 22.7% YoY, mainly due to acquisition of BGA. Amongst segments, Electric consumer durables which accounts for major portion of the total revenue saw a de-growth of 3.1% YoY, whereas its lighting products declined by 6.5% due to muted demand in conventional lighting business.
Impacted Margins: The Company reported its gross profit at Rs 546 Cr, a growth of 23.1% YoY and gross profit margin of 32.1% marginally up versus 32.0% a year ago. Its EBITDA came in at Rs 193 Cr down by 9.8% YoY and EBITDA margin at 11.4% which contracted by 410bps YoY. Margins were majorly impacted due to high base of last year, extended monsoon, high retail inflation as well as increase in overall expenses mainly Ad-expense.
Synergy Opportunity with BGA: To comply with listing requirements it sold 6% of its stake through OFS and currently holds 75% stake. Butterfly Gandhimati Appliances (BGA) unit continues to have strong presence in e-commerce contributing 45% of its BGA revenue. Going ahead, it is looking to explore synergy opportunities between BGA and Crompton in raw material and manufacturing to aid its future.
Continuing to gain market share: Crompton improved its market share by 5% in the premium fans segment on TTM basis. One of the companies to consistently gain market share across fan segment over last 2 years.
Valuations: The Company aims to increase its revenue through premiumisation, refreshing product portfolio and increase its distribution reach, going ahead. With continuous rise in market share, its acquisition of Butterfly Gandhimati and healthy return ratios ROE/ROCE at 27.0%/18.8% , we remain positive on company’s growth perspective and have estimated its Revenue/EBITDA/PAT to grow at a CAGR of 24.6%/23.0%/18.8% over FY22-24E. We maintain a Buy rating with a target price of Rs. 516.
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