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ICICI Securities
Crompton Greaves (Hold)
CMP: ₹226
Target: ₹220
Consumer electrical space in India is amidst high competitive intensity which will keep near term earnings for player such as Crompton Greaves Consumer Electricals (Crompton) under pressure. Most of the players are trying to de-risk by expanding product portfolio, often through inorganic means. Crompton has significant dependence on fans/lighting for growth. While it is struggling to improve margins in lighting, premiumisation driven growth in fans would also be incrementally difficult. Premium fan value share has already crossed 20 per cent for the industry and volume growth in fans remains tepid. Crompton has also lagged peers in terms of new launches and/or inorganic acquisitions. The water heater/cooler will be tested in 2HFY19. Currently, the stock is trading at 33xFY20E EPS. Considering the challenge of recovering margins in lighting and the increasing competition in the space, we do not find the risk reward beneficial.
We downgrade Crompton to ‘Hold’ from ‘Add’ with a target price of ₹220 (unchanged) based on 32x FY20E EPS. We recently downgraded the valuation multiple of Crompton from 35x to 32x to reflect the risk of higher share of lighting business, which will continue to face margin challenges.
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