Consumer Durable Company Reports Strong Revenue At Rs. 17bn, Buy Stock For 38% Return: Top Brokerage

Crompton Greaves has constantly expanded its leadership position in fans and maintained its industry-leading market share in pumps over the years. The BGAL acquisition should fuel market share gains in kitchen appliances as well. Leading brokerage firm BOB Capital has given a buy rating to the stock of Crompton Greaves, and said that premiumisation trends and the company's pricing power give it an edge over peers.

Stock To Buy: Target Price

The Current Market Price (CMP) of Crompton Greaves Consumer Electricals Ltd. is around Rs. 362.15. BOB Capital has estimated a Target Price for the stock at Rs. 500. This stock has the potential to give a 38.12% return, in the upcoming 1 year. It is a large-cap stock with a market capitalization of around Rs. 23,033 crore.

Stock Outlook
Current Market Price (CMP)	Rs. 244.85
Target Price	Rs. 294
Potential Upside	20.49%
52-week high share price	Rs. 247.80
52-week low share price	Rs. 139.15

Strong Earnings

Crompton's Q2FY23 revenue at Rs. 17bn was broadly in line while EBITDA margin came in lower at 11.4% vs. our/consensus estimates of 13.8%/13.1%. However, gross margin expanded 70bps QoQ to 32.1%. In H1FY23, fans grew 22% YoY, pumps 16%, appliances 39%, ECD 23%, and lighting 21%. During Q2FY23, fans declined in mid-single-digits, pumps were flattish, appliances grew 12% YoY.

Stock Valuation:

According to BOB Capital, "Muted margins in Q2FY23 and resultant lower profitability compel us to trim FY23/FY24 EPS estimates by 5%/2%, though we do expect a better H2FY23 as retail inflation cools, aiding volume growth. We continue to value the stock at 35x FY24E EPS, in line with its 5-year average. Estimate revision coupled with valuation roll-over to Sep'24E results in an unchanged target price of Rs. 500; retain Buy."

Improved working capital

In Q2FY23, working capital improved by Rs. 1.2bn compared to Mar'22, owing primarily to lower creditors as the company made a conscious decision to assist vendors in light of market uncertainty. Consolidated cash and equivalents totaled Rs 10.8bn, including Rs 1.6bn from the 6% stake sale (via an offer for sale) in BGAL.

Disclaimer

The above stock was picked from the brokerage report of BOB Capital. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.