At Rs 215, the Crompton stock is a good buy

At Rs 215, the Crompton stock is a good buy

By Rajiv Kapoor | 16 July, 2017

Crompton Greaves Consumer Electricals Ltd manufactures and markets a wide spectrum of consumer products ranging from fans, light sources and luminaires, pumps and household appliances, such as geysers, mixer grinders, toasters and irons. It has been the market leader in fans, domestic pumps and street lighting for over 20 years. The company has manufacturing locations in Goa, Vadodara, Ahmednagar and Baddi. Crompton’s consumer business has been the best performing in the industry, growing by nearly 16% CAGR over the last five years. Customer service and product quality of Crompton are a benchmark in the industry, with their CFL lamps having the lowest defects in the lighting industry. Crompton’s portfolio of energy-efficient products includes 5-star rated durable lights, fans, pumps and appliances for homes and offices. It has the largest number of 5-star rated energy efficient products and is the first company to cross the sale of 10 million fans, the largest in the world. It is continually introducing smarter products like super efficient LED bulbs and water heaters with the lowest standing costs, while Crompton pumps are used in millions of homes to fill overhead water tanks. Amongst other initiatives, the company is building branded stores in India to create awareness of the wide range of its products. The company has identified two reportable segments—lighting products and electrical consumer durables. Based on end use, the lighting industry can be classified into residential, commercial, industrial and outdoor lighting. Commercial lighting dominates the overall market with 45%, followed by residential lighting at 30%. Various government initiatives are likely to drive the demand of lighting products in a big way and Crompton is well poised to take advantage of the government schemes. The LED lighting segment is projected to become a key revenue contributor to the lighting industry by 2020, with LED lights expected to replace other lighting sources such as incandescent bulbs, FTL and CFL. Hence, demand for CFL is likely to decline and the LED segment is expected to grow significantly. Electrical consumer durables can be classified into fans, pumps and appliances. Key demand drivers for fans are likely to be a rise in rural penetration with increased electrification, replacement demand from urban areas and increasing shift towards premium offerings and housing growth. On the other hand, the government’s increased focus on irrigation and energy efficiency are likely to have a positive impact on demand of pumps. Moreover, growth in the housing sector and falling groundwater levels are likely to boost demand for pumps. The earning per share of the company for FY18 and FY19 is seen at Rs 5.60 and Rs 6.61, respectively, while net sales and profit after tax are expected to grow at a CAGR of 42% and 58% over the next few years. The Crompton stock, currently trading at Rs 215, is a good, fundamental buy with a price target of Rs 300 in the next nine months.

Rajiv Kapoor is a share broker, certified mutual fund expert and MDRT insurance agent.

 

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