Crompton Greaves Consumer Electricals Ltd (CROMPTON) is sparkling with potential as technical and fundamental indicators align to suggest an impending bull run to ₹350.
After correcting nearly 38% from its 52-week high of ₹505, this leading fast-moving electrical goods (FMEG) company is poised for a strong comeback.
Favorable Technical Setup
From a technical perspective, CROMPTON seems to have bottomed out after retracing 61.8% of its previous up move per the guidelines of alternate wave retracement.
The time retracement also stands at a perfect 100%. This congruence of the price retracting to 0.618 and time reaching 100% signals a trend reversal.
Additionally, the weekly relative strength index (RSI) has reversed from the 50 levels, adding credence to the bullish Setup.
As per the analyst:
“One can buy the crompton shares in the zone of ₹295–305 for a target of ₹350 and a stop loss of ₹275 on a daily closing basis”
The stop loss allows for a 7% downside, but the upside potential is over 16% from current levels. The reward far outweighs the risk.
Strong Fundamentals and Competitive Advantages
Crompton Greaves enjoys a competitive edge with its superior product portfolio comprising fans, lighting, pumps and household appliances.
As of Q2FY23, it holds over 15% market share each in fans and residential pumps. Their distribution network stands at 21,000+ outlets pan-India ensuring robust reach.
Despite raw material cost inflation and global headwinds, the company delivered a resilient performance in Q2FY23:
- Revenue grew 20% YoY to ₹1,797.15Cr
- EBITDA rose 7% YoY to ₹203 crores
- Net profit surged 31% YoY to ₹97.22 crores
CROMPTON is expanding capacities across various product lines using advanced robotics and automation. This will aid margin expansion while meeting growing consumer demand. Meanwhile, working capital optimization and premiumization efforts continue unabated.
These strong fundamentals have received thumbs up from analysts as well with 9 strong buy and 11 buy ratings. The healthy mix of growth prospects and profitability has placed CROMPTON among the top FMEG picks.
Attractive Valuations and Ownership Profile
Despite the bright prospects, CROMPTON trades at an annualized P/E of just 16.7x compared to the sector average of nearly 25x.
The company has traded between 35-55x earnings over the past 5 years highlighting the current valuation gap. This will likely close as earnings growth accelerates.
Promoter shareholding stands reasonably high at 2.54% providing confidence. But FIIs and mutual funds command the largest ownership at 35.64% and 10.16% respectively – sponsoring a potential re-rating.
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Final Takeaway
Backed by improving industry dynamics, market leadership across segments, expanding distribution, strong financial performance and capacity expansion plans, CROMPTON offers an attractive risk-reward profile at current levels.
The technical charts have aligned bullishly, and the valuations remain modest indicating limited downsides.
Meanwhile, the uptrend potential appears significantly higher – making this consumer electrical stock a compelling BUY around ₹300 for a ₹350 target over the coming months. Stay invested with a strict stop loss at ₹275.
Frequently Ask Questions
What does Crompton Greaves do?
Crompton Greaves Consumer Electricals Ltd (CROMPTON) is a leading fast-moving electrical goods (FMEG) company in India engaged in manufacturing fans, lighting, pumps and small appliances.
What is the latest price and target for Crompton shares?
Crompton is currently trading around ₹299. The technical setup and fundamentals suggest a price target of ₹350 (upside of over 16% from current levels).
Is it a good time to buy Crompton shares?
Yes, Crompton seems attractive at current valuations of 16.7x P/E (vs sector avg of 25x) after correcting 38% from its peak. The risk-reward is favorable for investors with upside potential of 16% and limited downside of 7% (to the stop loss).
What are the key drivers for Crompton?
The growth drivers include market leadership in key segments, strong brand equity, extensive distribution reach, new product launches using automation and premiumization strategy. Focus on working capital and margin expansion also aids performance.
What are the latest financial results and guidance?
In Q2FY23, Crompton posted 20% revenue growth, 7% EBITDA growth and 31% rise in net profit. For FY23, management has indicated sustained earnings momentum from commercial and industrial segments despite global headwinds.
What is the outlook from analysts for Crompton?
Analyst consensus is firmly bullish on Crompton with 9 strong buy and 11 buy ratings. They highlight the company’s long growth runway, dominant market position across product categories and ramp-up of new capacities over 2-3 years.