The Hindu Business Line

Crompton Greaves (Buy)

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CMP: ₹222.15

Target: ₹275

We initiate coverage on Crompton Greaves Consumer (Crompton) with a March 2020 target price of ₹275, 32xFY21E (20 per cent discount to Havells) and a potential upside of 19 per cent. Contrary to popular perception, we believe Crompton has had a great track record in the past and is likely to deliver steady growth in future.

It continues to work judiciousl­y on a) innovative products and premiumisa­tion in existing categories (anti-dust Fans, Air 360, Mini Crest pumps, Anti-bacterial LED bulb); b) revival/ new launches of categories (water heaters, air cooler); c) brand building (A&P spend stepped up to 2.6 per cent of revenues in FY17; 1 per cent in FY17); and d) distributi­on (go to market-expected to cover 70-75 per cent of target regions over the next 18 months).

While we appreciate product concentrat­ion risks, we believe Crompton is attractive­ly priced given its excellent return profile, free cash flow conversion and stronger bottomline growth (lower ESOP/consultant fees and incrementa­l supplier discountin­g).

Key risks include slower than expected macro recovery.

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