Crompton Greaves shares rise on Butterfly acquisition

Crompton Greaves has signed an agreement to acquire 55% stake in Butterfly for Rs 1,380 crore. In addition, it will acquire 26% equity stake through an open offer for a consideration of Rs 667 crore. This Butterfly is valued at Rs 2526 crore, which is slightly higher than its current market cap of around Rs 2500 crore. The market capitalization of Butterfly on Tuesday stood at Rs 2480 crore.

Crompton will also acquire some trademarks for Rs 30.4 crore. Analysts are very optimistic about the deal. “The acquisition valued Butterfly at 2.3x sales over mCap/annual FY2012 sales. Taking into account the 5% synergy gain (of Butterfly sales) in FY24, earnings from the acquisition are likely to increase even after adjusting for other income losses for Crompton. We believe this is due to (1) high level of operations, (2) efficiencies in raw material sourcing and media procurement, (3) merging of distribution networks and efficiencies in freight and transportation and (4) relatively strong access There will be synergistic benefits. For markets in South India,” analysts at ICICI Securities said in a report.

Crompton is a leading brand in the category of fans and residential pumps. In addition, the company has also entered into the production of other products such as water heaters, air coolers and electric kettles. Butterfly, on the other hand, is engaged in a portfolio of small home appliances such as pressure cookers, LPG stoves, non-stick cookware, mixer grinders and table top wet grinders. It has a strong hold in South India.

As such, Crompton’s goal of becoming one of the top players in the small home appliance segment is likely to accelerate through this transaction. In addition, Crompton has the advantage of capitalizing on two brands. “The acquisition will enable Crompton to (1) strengthen its connectivity in South India, (2) expand its distribution network, (3) offer a better right-to-win in kitchen appliances, and (4) reduce dependence on the Crompton brand.” Will help.” Analysts at ICICI Securities said.