Concerns related to change in directorate may impact Crompton Greaves’ valuation: ICICI Securities

The exits by private equity investors as well as the senior management of Crompton Greaves Consumer Electricals Ltd raise concerns related to the continuation of its business strategy, which may result in lower valuation multiples, according to analysts at ICICI Securities. The brokerage firm has maintained a ‘Buy’ rating for the company, with a revised target price of ₹325. The development comes days after the company announced the resignation of Mathew Job as the chief executive officer and the executive director of Crompton Greaves on Monday.

The board of the household appliances maker appointed Promeet Ghosh as the managing director and CEO for a period of five years. The company has also elevated Shantanu Khosla as the executive chairman of the board for a period of one year from May 1, 2023 to April 30, 2024.

The brokerage firm says that Ghosh has articulated his strategy as driving sustainability, innovation and digitisation, and investments in branding.

"While he is associated with the company since 2016, we have concerns regarding his expertise in running a durables company (he has mostly been an investment banker so far). We will be keenly watching his strategy and execution. Shantanu Khosla (elevated to Exec VC) will continue with the same role (different designation) and support the management till Dec’25," says the note.

Despite the concerns related to the change in the directorate, the brokerage firm, however, believes that the stock offers healthy risk: reward to investors at the current valuation (22x FY25E). “With Shantanu Khosla remaining on board till Dec’25, there is some stability to the management. The business moats (brands, distribution network) also remain largely intact. We cut FY24E earnings to factor in muted demand for durables,” the brokerage firm says.

"We model Crompton to report a PAT (profit after tax) CAGR of 21% over FY23- FY25E and RoE of 24% in FY24E. While there are concerns related to the change in the directorate, we believe the stock offers healthy risk: reward at the current valuation (22x FY25E). Maintain BUY with a revised DCF-based TP of Rs325 (implied P/E of 28x FY25E EPS)," it adds.

On Wednesday, the share price of Crompton Greaves plunged 3.2% to hit a 52-week low of ₹251.25 apiece on the Bombay Stock Exchange. During the session on Wednesday, the scrip opened higher at ₹260.05 as against the closing price of the previous session at ₹259.70. The scrip closed at ₹252.55 on Wednesday. Currently, the shares of Crompton Greave are trading 36.9% lower than the 52-week high of ₹428.80. At the end of the trading session on Wednesday, the company’s market capitalisation stood at ₹16,064.95 crore as 4,57,548 shares exchanged hands on the BSE, which is lower than the two-week average of 5.59 lakh shares.