Crompton Greaves Consumer Electricals’ 12% fall after CEO resignation an overreaction, say analysts

The company has appointed Promeet Ghosh as the new managing director and chief executive officer in place of Mathew Job, who has resigned, for five years

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Crompton Greaves Consumer Electricals shares fell almost 12 percent on April 25 morning after the surprise resignation of Mathew Job from the position of chief executive officer.

During his tenure, the company’s market capitalization grew from Rs 5,000 crore to Rs 18,664 crore, ICICI Direct said in a note.

At 9.45 am, the stock was quoting at Rs 260 on the NSE, down 11.6 percent from the previous close, and hit a 52-week low. Trading volumes at 14 million shares were significantly higher than the 20-day average volume of 1.9 million shares.

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Promeet Ghosh has been appointed as the new managing director and CEO in place of Job for five years, the company said in a release.

“Ghosh has a background in financial services industry and has been an investment banker for two decades. The Street is sceptical as to how he can drive a consumer durables major, which is at the cusp of integration with another company,” an analyst said on the condition of anonymity.

That said, the 12 percent fall is an overreaction, the analyst added. Another analyst said they were expecting only a 4-5 percent correction and the stock could recover in some days.

“Shantanu Khosla who has been the managing director of the company for the past seven years has been elevated to vice-chairman which is a good move. Moreover, Ghosh has been on the company’s board since 2016 when Temasek bought a stake in it. Ghosh was the deputy head at Temasek India then,” said another analyst.

Key monitorables

The company is going through a transformative journey. On January 1, ceiling fans came under revised energy efficiency norms, with star ratings linked to their power consumption.

As stocks of no-star-rated fans are liquidated in the transition to star-rated fans, Crompton Greaves Consumer Electricals is educating Indians about the switch, the company said.

Fans currently contribute to 40 percent of the company’s turnover.

Then there is the much-talked-about merger with kitchen appliance maker Butterfly Gandhimathi. The management has already said in an analyst call that cost synergies of the merger would not flow to the bottomline immediately.

The company’s operating margins are also under pressure, having fallen from 14 percent to 10 percent in the past few quarters and revenue CAGR (compounded annual growth rate) has been slow at 6 percent over FY17-22.

“In this context, any material changes in growth outlook and margin guidance by the new management will be key monitorables for the company,” said ICICI Direct.

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