India's shifting preference towards premium products and increasing penetration of the electrical goods in the country, stands to benefit Crompton Greaves Consumer Electricals Ltd., said brokerage house Goldman Sachs which initiated coverage on the company.
A relatively lighter asset model and a new management also augers well for the company, said the brokerage house, putting a 'buy'rating on the stock with a 12-month target price of Rs 286 per share, an upside of 30 percent from Monday's closing price.
With an asset-light balance sheet, and strong brand equity, the company will likely grow across the existing product lines and continue to introduce a wide array of new products, strengthening its competitive position.Goldman Sachs Research Note
Catalysts
The company is likely to benefit from:
- Strong growth in the consumer durables segment
- Constant product introduction
- Expected growth in affordable housing
- Premiumisation to drive growth in an already well penetrated fan segment
Key Risks
- Meaningful deterioration in the consumer electrical sector
- Company’s failure to scale up meaningfully
- Competition leading to lower profitability
- Any acquisition that leads to lower profitability
Goldman Sachs expects a 14 percent compounded annual growth rate (CAGR) over financial year 2017 through 2020 and increase in penetration for the company is likely to propel growth which could be higher than that for the industry over the medium term.
The research note assigns a 24 percent earnings per share CAGR for the company for the period financial years 2017 through 2019, higher than other covered companies with 20 percent CAGR. Failure to scale up meaningfully and intensifying competition leading to lower profitability were among some key risks noted by the broking firm.
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