The scheme of amalgamation of Butterfly Gandhimathi with self was proposed by Crompton Greaves Consumer Electricals last week. The public shareholders of Butterfly Gandhimathi 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. The public shareholders of Butterfly will hold 3 per cent of the combined entity post- merger. The merger is seen as a way to increase revenue and cost synergies over short to medium term. It will lead to a faster go to market strategy for the combined entity, as well as to a faster go to market strategy for pan-India expansion. It is seen as having ability to cross-sell products across channels and simplify corporate and governance structures, leading to more efficient capital allocation.
Nomura India said the share swap has a market cap of Rs 2,310 crore to Butterfly, or Rs 1,294 per share, compared to a March 24 price of Rs 1,275. In the past, Crompton Greaves Consumer Electricals acquired an 81 per cent stake in Butterfly Gandhimathi in two tranches, which was effectively Rs 1,403 per share in February 2022 and 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 margin of 36.3 per cent in 9 MFY 23 than Crompton Greaves Consumer Electricals 31.1 per cent in 9 MFY 23, while its Ebitda margins are 10.2 per cent over FY 23 - 25 F and Butterfly's Ebitda margins will improve to 13.5 per cent in FY 24 and 15.2 per cent in FY 25.
It said that the transaction will be EPS accretive by FY 25 F. The target price on Crompton was maintained by the brokerage, with a Buy rating of 377, based on its target P E of 30 times, applied to FY 25 F EPS. The stock trades at 23.3 FY 25 F P E, which is attractive, according to Nomura India.