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Crompton Greaves Consumer Electricals Limited (Crompton) has a leadership position in core categories, strong brand recall, wide-spread distribution network and a track record of product innovation and premiumization. This has been aided by a strong focus on investments in brand, products, and distribution. Its recent acquisition of Butterfly Gandhimati (BGAL) is positive from the medium to long term and sets the stage for its next leg of growth. We expect its proven capability in portfolio premiumization, cost efficiencies, and Go-To- Market (GTM) improvements to enable synergies across BGAL’s business, while product and distribution synergies in medium to long term will lead to double-digit growth with improvement in BGAL margins. Overall strong focus on profitability and industry leading RoCE and FCF profile as well as numerous initiatives embarked upon by the company (cost control, GTM Distribution etc.) makes us positive. We expect consolidated revenue/ EBITDA/PAT CAGRs of 20%/18%/15% over FY22-25E. We initiate with a Buy with PT of ?485, valuing Crompton at 34x FY25E EPS.

Leading player having dominant position across categories

Crompton ticks many boxes on multiple fronts. It has a leadership position in its core categories (fans, pumps) and has multiple strengths necessary to succeed in the industry – (1) strong brand recall (fortified through increased brand investments in last few years), (2) wide-spread distribution network (strengthened through GTM), (3) track record of continued product innovation (premium fans, Mini Crest water pump, anti-bacterial LED lights etc.) and (4) early in-roads into newer product categories – leader in water heaters, entered air coolers, mixer grinders etc.

BGAL acquisition provides avenues for next leg of growth

While the company has been expanding its presence in kitchen appliances which being at a nascent stage, we believe BGAL acquisition will be crucial for the next leg of growth. Acquisition remains positive from a medium to long-term perspective given revenue synergy levers like (1) higher growth profile of kitchen appliances segments vs. Crompton’s existing categories, (2) addition of complementary product categories, (3) Cross-selling to tap multiple geographies. 4) Product portfolio in Kitchen appliances largely non overlapping (5) access to another established brand (crucial to straddle different price points) and (6) opportunities to leverage on growth and cost synergies (Butterfly’s in-house manufacturing — ~85% for Butterfly vs. ~50% for Crompton) to drive profitability. We estimate combined top line to grow at ~18% CAGR over FY22-25E.

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