Crompton Greaves Has Favourable Risk-Reward Profile, Says Goldman Sachs, Sees 45.8% Upside

Goldman Sachs has reiterated its 'buy' rating on Crompton Greaves Consumer Electricals Ltd., projecting a 45.8% upside with a new 12-month target price of Rs 480. The brokerage highlights Crompton's favourable risk/reward profile, noting the stock has corrected 21% over the last six months, compared to an 8% decline in the BSE Sensex, the brokerage noted.

Goldman Sachs emphasised Crompton's potential for profitable growth, driven by its initiatives to reaffirm dominance in core categories like fans and pumps. Despite uncertainties in consumer demand due to potential weakening of the real estate cycle and mixed impact from tax rebates, Crompton is well-positioned to navigate these challenges. The company's conservative estimates and reasonable valuation further bolster its outlook.

The consumer durables industry, excluding air conditioners, has seen tepid growth over the past 12-24 months, with consumption slowing down post-Covid due to a negative wealth effect. Within this sector, Crompton has grown the slowest among Goldman Sachs' coverage, partly due to an overhaul of its Butterfly operations post-acquisition and continued price erosion in its lighting segment.

However, Goldman Sachs expects Crompton's growth to outperform the industry in the upcoming quarters. This optimism is based on several factors, including management changes within segments, distribution changes in Butterfly, and stabilisation in the lighting segment. Additionally, initiatives like newer SKUs across categories and opportunities in solar pumps are expected to drive growth.

The brokerage notes that government stimulus via tax breaks should benefit the entire industry, but Crompton's strategic positioning and low expectations compared to peers make it particularly well-placed to capitalise on these opportunities. Goldman Sachs remains positive on Crompton's long-term prospects.