Prabhudas Lilladher has issued a BUY call for Crompton Greaves Consumer Electricals (CROMPTON IN) with a target price of Rs 536, indicating a potential upside from the current market price of Rs 420. The research house highlights the company’s strong focus on market-share gains, geographical expansion, and product diversification. Despite short-term demand softness, the firm is confident in Crompton’s long-term growth prospects, supported by strategic initiatives in manufacturing and supply chain efficiency. Below is a detailed breakdown of the report’s key points and investment recommendations.

Strategic Market Expansion and Product Diversification

Crompton Greaves is focused on gaining market share and expanding its product offerings.
The company has ambitious plans to increase its market share in the fan segment from 25% to 40% over the next 3-4 years. Crompton is also looking to grow its geographical footprint in East and North India, leveraging improved distribution networks and brand awareness. In addition to traditional categories like fans and appliances, the company is diversifying into segments like solar pumps and cooktops, further strengthening its portfolio.

Financial Projections and Growth Targets

Crompton is projected to deliver solid financial growth across key metrics.
Prabhudas Lilladher estimates a compounded annual growth rate (CAGR) of 13.2% in sales, 20.5% in EBITDA, and 24.9% in net profit over FY24-27. The company is expected to achieve revenues of Rs 83,479 million in FY25, rising to Rs 106,110 million by FY27. EBITDA margins are forecasted to improve from 9.8% in FY24 to 11.8% in FY27, reflecting increased operational efficiency and cost management.

Cost Optimization and Manufacturing Efficiency

In-house manufacturing and vendor collaboration are key to reducing expenses.
Crompton is focusing on in-house production to improve efficiency, particularly in fan manufacturing, where it aims to reach 70% internal production. Additionally, the company is utilizing the manufacturing capabilities of Butterfly, a recently acquired brand, to streamline its appliance portfolio. These strategies are expected to enhance supply chain management and cost optimization, leading to better margins.

Channel Expansion to Drive Growth

Channel diversification is a central element of Crompton’s growth strategy.
Crompton’s management is working on expanding alternate sales channels, which currently account for 20% of the company's revenue. The company is also exploring partnerships with regional chains and retailers like DMart and CROMA to enhance its presence in key product categories such as lighting and appliances. This approach is expected to drive higher sales and improve brand visibility across India.

Stock Levels and Target Price

Prabhudas Lilladher has upgraded Crompton’s target price to Rs 536 from Rs 476.
Crompton’s stock is currently trading at Rs 420, and the research house expects it to reach Rs 536, offering a potential upside of 27.6%. The stock is trading at a price-to-earnings (P/E) multiple of 45.1x for FY25, which is attractive given its growth prospects. The stock has been recommended as a BUY, with Prabhudas Lilladher highlighting Crompton’s ability to capture market share and deliver strong financial performance in the medium to long term.

Investor Considerations

Long-term investors are advised to take advantage of the company’s growth potential.
Crompton’s strategic initiatives in market expansion, cost efficiency, and product diversification make it an attractive investment. While near-term demand softness in certain markets like Kerala has been noted, the company is well-positioned for recovery in the second half of FY25. Investors with a long-term horizon should consider Crompton as a solid addition to their portfolios, particularly given the expected recovery in margins and profitability.

In conclusion, Prabhudas Lilladher’s BUY recommendation for Crompton Greaves Consumer Electricals is underpinned by strong growth prospects, efficient cost management, and strategic market expansion. With a target price of Rs 536, the stock offers a promising investment opportunity for those looking to capitalize on long-term value creation.