In an upbeat market on Friday, shares of Crompton Greaves Consumer Electricals climbed by approximately 3%. This boost came after Antique brokerage upgraded the firm’s stock to a ‘BUY’ rating with a revised target price of ₹503, indicating a possible 14% upside. Crompton Greaves’ stock opened at ₹425.35 on the BSE, reached an intraday high of ₹435.40, and touched a low of ₹422.65 during the day.
Ruchit Jain, Lead Research Analyst at 5paisa, observed that Crompton Greaves has recently formed a higher top-higher bottom structure, signifying an uptrend. He pointed out that the 405-400 range serves as a robust support zone for the stock in the near term. This positive outlook aligns with Antique brokerage’s reasoning for the upgrade, which is based on the anticipated recovery in demand driven by a notable increase in real estate sales and rising demand in rural areas.
Over the past three years, Crompton Greaves has faced significant operational challenges. The company struggled with soft consumer demand, margin pressures from steep cost increases, and an inability to pass these costs onto consumers due to weak demand.
Additionally, integration issues following the acquisition of Butterfly and changes in management strategy have further complicated the company’s performance. However, Antique brokerage believes that these issues are gradually being resolved, paving the way for improved performance.
Crompton Greaves’ operational performance is expected to show significant improvement starting from FY25. This anticipated turnaround is attributed to a recovering market, stabilizing commodity prices, and the nearing completion of the Butterfly restructuring.
According to projections, the company is set to achieve a 27% earnings CAGR over FY24-27, compared to a -10% CAGR over FY21-24. For the quarter ending March 2024, Crompton Greaves reported a 1.43% increase in consolidated net profit, amounting to ₹133.43 crore. The total income from operations during Q4FY24 rose to ₹1,961 crore from ₹1,790.96 crore in the same period the previous year.
The restructuring of Butterfly, expected to be completed by the first quarter of FY25, is anticipated to enhance its operational performance significantly. Since its acquisition by Crompton in FY22, Butterfly’s business performance has been underwhelming. Crompton has been focusing on increasing retail sales through modern trade, regional trade, and e-commerce channels while reducing its institutional and corporate businesses. This strategic shift is expected to yield positive results once the restructuring is complete.
Crompton Greaves is also working on expanding its product portfolio and network to revive its lighting segment. The government sector and traditional markets are witnessing a revival in B2B demand, and Crompton is expanding its B2C portfolio by increasing its ceiling light offerings. As a result, the lighting segment is projected to achieve a 12% revenue CAGR and a 16% earnings CAGR over FY24-27.
Looking ahead, Crompton Greaves aims to bolster its balance sheet and turn debt-free by the end of FY25. The company expects to generate an annual free cash flow of ₹8 billion over FY24-27, which will be instrumental in achieving this goal. The brokerage firm believes that Crompton is in a comfortable position to meet its targets by the specified timeframe.
