Sluggish growth outlook a snag for Crompton Greaves stock

There is no doubt that valuations have gone up significantly. Yes Securities Ltd analyst Himanshu Nayyar said, “In fact, Crompton stock has seen a re-rating. The current valuation is higher than its own historical valuation at around 42 times FY13 estimated earnings.”

Thus, meaningful upside can be narrowed down here. Nayyar said, “Crompton’s valuation is at a significant discount to Havells India Ltd., which may provide some more room for valuations for further expansion. But the outlook on that is not bright from a near-to-medium-term outlook.” This is largely because it is unlikely to surprise Crompton positively on the earnings front.”

crompton Manufactures products such as fans and household appliances such as water heaters, coolers, mixer grinders and irons. In general, there is some risk of further earnings growth for the company.

In a September 1 report, Credit Suisse Securities (India) Pvt. Ltd said, “Growth is likely to remain modest due to (1) strong dependence on fans (45% of revenue), (2) weak growth dynamics across categories, such as pumps with FY17-FY21 CAGR 7. %, (3) potential incremental price erosion in lighting and (4) limited opportunities in categories such as air coolers and water heaters.” CAGR is the compound annual growth rate.

Credit Suisse has assumed coverage on the stock with a ‘neutral’ rating and a target price of ₹500. Note that Crompton stock . closed on ₹482 per share on the National Stock Exchange on Thursday.

Meanwhile, like most companies, Crompton’s June quarter results (Q1FY22), too, were adversely affected on a sequential basis due to the second wave of Covid-19. However, the favorable base helped the year-on-year growth.

In Q1, Crompton’s market share in fans increased. In addition, to deal with commodity cost pressures, Crompton has increased prices.

To be sure whether the demand momentum continues ahead will be crucial in the days to come. Crompton is likely to benefit from market share gains and premiumization in the fans segment.

However, investors will have to keep an eye on the extent of incremental gains from this factor in the future.