Crompton Greaves Consumer Electricals last week proposed a scheme of amalgamation of Butterfly Gandhimathi with self. Upon merger, the public shareholders of Butterfly Gandhimathi as on the record date will receive 22 equity shares of Crompton Greaves Consumer Electricals for every five equity shares held by them in Butterfly, as a consideration for the merger. As per the proposal the public shareholders of Butterfly will hold 3 per cent stake in the combined entity post-merger,.
The merger is seen driving various revenue and cost synergies to be realised over short to medium term. It will lead to a faster go to market strategy for pan-India expansion for the combined entity. It is seen having ability to cross-sell products across channels and simplify corporate and governance structure, leading to more efficient capital allocation.
Nomura India said the share swap implies market cap of Rs 2,310 crore to Butterfly, or Rs 1,294 per share, compared to a price of Rs 1,275 on March 24. In the past, Crompton Greaves Consumer Electricals acquired an 81 per cent stake in Butterfly Gandhimathi in two tranches, effectively at Rs 1,403 per share in February 2022 and later sold a 6 per cent stake in September 2022 at Rs 1,370/share due to regulatory requirements.
Nomura said Butterfly Gandhimathi commands a higher gross margins (36.3 per cent in 9MFY23) than Crompton Greaves Consumer Electricals (31.1 per cent in 9MFY23), but its Ebitda margins of 10.2 per cent in 9MFY23 is depressed due to higher overhead and marketing costs .
Given CromptonтАЩs reach and brand equity, the brokerage expects Butterfly Gandhimathi to grow revenue at a 16 per cent CAGR over FY23-25F and sees Butterfly’s Ebitda margins improving to 13.5 per cent in FY24 and 15.2 per cent in FY25.
“Thus, we expect the transaction to be EPS accretive by FY25F,” it said. The brokerage has maintained its Buy rating on Crompton with a target price of Rs 377, based on its target P/E of 30 times, applied to FY25F EPS. Nomura India said the stock trades at 23.3 FY25F P/E, which is attractive.
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