Greaves Consumer Electricals, which had remained under pressure due to stake sale by private equity investors, has rebounded well and is up more than 12 per cent since August lows. The company’s prospects remain firm which is evident from the fact that majority of shares offloaded by private equity investors were picked up by mutual funds, point out analysts. Also, the stake sale now has taken away a major overhang on the stock.
On the business front, the company has been doing well, led by its electrical consumer durables (ECD) segment, which accounts for more than two thirds of overall revenue. Though competitive intensity and price erosion in the lighting segment remains high, the business is doing better than earlier led by volume growth, say analysts.
During the September quarter, the growth in Crompton’s ECD business was driven by market share gains in fans (up 70-80 bps as per analysts). Appliances segment too continued posting stellar growth, which has hovered around 30 per cent in last 3 quarters. Besides, the company is also focussed on geysers, mixers. grinders, pumps and even air coolers and has re-launched the appliances portfolio over the past one year, say analysts.
It is now concentrating on marketing to accelerate growth. Meanwhile, double-digit growth in agricultural pumps and water heaters is helping the company take care of weakness in the lighting segment, feel analysts. Those at HDFC Securities estimate the ECD segment to grow at 13 per cent a year over FY20-21.
The strong product portfolio, established brand, market leadership, wide distribution network, robust return ratio profile and a healthy free cash flow-generating business model keeps analysts at Motilal Oswal Financial Services (MOFS) positive on the company’s prospects.
On the financial front, while analysts have marginally cut their revenue estimates looking at the pricing pressure in lighting business, they still remain positive on earnings trajectory led by improving profitability of consumer durables business and tax cuts. Arafat Saiyed of Reliance Securities had increased his earnings estimates by nine per cent and four per cent respectively for FY20 and FY21, which also factors in benefits of lower tax rate. Target prices of MOFS, Reliance Securities, Elara Capital and HDFC Securities indicate an upside potential of up to 33 per cent for stock trading at Rs 247.