Nomura maintained a 'Buy' rating on Crompton Greaves Consumer Electrical but cut its target price to Rs 292. The brokerage adjusted its valuation to factor in higher commodity costs. "We believe the current valuation at 17x FY29F EPS is attractive," Nomura said. Many segments showed growth through new product launches.
Nomura has maintained its 'Buy' rating on Crompton Greaves Consumer Electrical but lowered its target price to Rs 292 from the earlier level, cutting its target price-to-earnings multiple to 25 times from 28 times to factor in near-term earnings risks from higher commodity costs. "Crompton's 2QFY27 consolidated revenue at Rs 22.6 billion (+18% y-y) was 4%/5% above our/consensus estimates. EBITDA margin came in at 9% (Nomura/consensus estimates: 8.9%), leading to EBITDA of Rs 2 billion, +24% y-y. Thus, APAT was up 28% y-y," the brokerage said in its latest report. Electrical Consumer Durables (ECD) revenue grew 19% year-on-year, against Nomura's estimate of 14%, while EBIT margin at 11.6% was below its estimate of 12.5%. Lighting revenue rose 14%, with EBIT margin at 12.9%, against the brokerage's estimate of 11.5%. Butterfly reported 17% revenue growth and a 7.4% EBIT margin, against Nomura's estimate of 5.5%. Price hikes and new segments to support growth "All segments grew in double-digits (DD) y-y on the back of new launches and premium mix. Supply chain and inventory is now normalized," management said, according to the report. The company has taken year-to-date price hikes of 15%-16% and passed on around 80% of cost inflation. New businesses across solar and wires contributed 10% of revenue, while exports grew more than 70% year-on-year on a low base. Nomura raised its FY27 revenue growth estimates for ECD and lighting to 13% each from 10%-12% earlier, while maintaining growth estimates of 11% and 8% for FY28 and FY29, respectively. The brokerage raised revenue estimates by 1.4% over FY27-FY29 but cut EBITDA margin estimates by 30 basis points, 20 basis points and zero basis points, respectively, to 9.9%, 10.5% and 11%. This led to EPS cuts of 3%-5%. "Progress toward its revenue CAGR target (report) of 13%-15% and 11%-12% EBITDA margin by FY29F pose upside risk to our estimates," Nomura said. The brokerage cut its target P/E multiple to 25 times from 28 times, applying it to average FY28-FY29 EPS to arrive at Rs 292. "We believe the current valuation at 17x FY29F EPS is attractive given a 17% EPS CAGR over FY26-29F," Nomura said, reiterating its 'Buy' rating.