This merger will enable product innovation across both brands and allow simplification of corporate and governance structure. Butterfly is currently a strong brand in south India and Crompton looks at its expansion in non-south markets of India. However, the real value of the revenue synergies will start flowing through FY24 onwards.
On 25th March 2023, Crompton announced merger of remaining 25 percent stake in Butterfly. Public shareholders of Butterfly will receive 22 equity shares of Crompton for every 5 equity shares held. Following this, minority shareholders of Butterfly Gandhimathi will hold 3 percent in Crompton and as a part of this scheme, existing shareholding of Crompton in Butterfly will get cancelled.
Brokerages expect this to benefit the shareholders, where Nomura says "the proposed merger shall be EPS accretive from first year of it being effective." CLSA adds "While a large part of synergy will have accrued under current structure, this will bring simplification to corporate and governance structures." Also, "realization of synergy and improving market share and margins in appliances segment are key to a rerating". CLSA has an outperform rating on this stock with target price of Rs 350, while Nomura has a Buy call with Rs 377 as target price.
In a conference call hosted for analysts on 27th March 2023, Crompton says the merger will enable product innovation across both brands and allow simplification of corporate and governance structure. Butterfly is currently a strong brand in south India and Crompton looks at its expansion in non-south markets of India. However, the real value of the revenue synergies will start flowing through FY24 onwards.
It further adds that cost synergies of Rs 18-20 crores was realized until now, but not all cost synergies may flow to bottom line and part of it will be reinvested in business.
Crompton says the current manufacturing set up may not be able to meet combined needs and hence the scale up of manufacturing facilities will involve capex for line automation. Butterfly has underutilized capacity for mixers and Crompton will start manufacturing mixers in Butterfly's facility.
Crompton is a dominant player in its areas operations with 27 percent market share in fans, 8 percent in LED lighting and 16 percent in residential pumps. Within the appliances segment, it holds 12 percent market share in water heaters and 8 percent in air coolers. Butterfly which has a strong foothold in South India has 11 percent share in mixer grinder, 8 percent in gas stoves and 5 percent in pressure cookers.
Further, for this merger to be proceed, getting approval from the majority of the minority shareholders will be a key step. Q1-FY24 is an indicative timeline for stock exchange and SEBI approval, while the NCLT approval is expected in last quarter of FY24. The overall indicative timeline for effecting the scheme is
12 – 14 months.
Shares of Crompton closed higher on the exchanges yesterday at Rs 295, Butterfly Gandhimathi closed nearly 5 percent lower in trade because the share swap not favorable for the company. In February 2022, Crompton bought controlling stake in Butterfly with 75 percent stake valued at about Rs 1,900 crores. The acquisition cost for Crompton is said to be 10 percent less.
Shantanu Khosla, MD at Crompton Greaves Consumer Electricals in its interaction with CNBC-TV18 on 28th March 2023 said "we expect revenue synergies from FY24 and will continue to add green field capacity as and when required. We are looking at revenue growth in low teens as a bare minimum".
Check out our in-depth Market Coverage, Business News & get real-time Stock Market Updates on CNBC-TV18. Also, Watch our channels CNBC-TV18, CNBC Awaaz and CNBC Bajar Live on-the-go!