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Reliance Securities
CGCEL (Buy)
CMP: ₹220
Target: ₹305
Crompton Greaves Consumer Electricals (CGCEL) continued to deliver a healthy performance in 1QFY19, with its net profit growing by 29.9 per cent y-o-y to ₹100 crore. CGCEL’s overall margins grew by 194 bps y-o-y to 13.9 per cent in 1QFY19 led by improved margin in both electrical consumer durable and lighting products business.
Consumer business of CGCEL is expected to sustain growth, going forward on the back of strong demand and higher outsourcing. Its core product portfolio — comprising of fans, lights and pumps — is expected to get a boost owing to higher disposable income following Seventh Pay Commission payouts and expected recovery in rural demand.
We expect CGCEL’s earnings to witness 29.8 per cent CAGR over FY18-20E driven by strong product portfolio of established brands, market leadership and robust distribution network. CGCEL is expected to deliver RoCE in 30-40 per cent range during the same period.
Valuing at 35x P/E to its FY20E EPS, we maintain our ‘buy’ recommendation on the stock with a target price of ₹305.
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