Butterfly Gandhimathi stock falls 5% on merger with Crompton Greaves

Shares of Butterfly Gandhimathi Appliances fell as much as 5% in intraday trade on Monday after the kitchen appliances maker announced its merger with Crompton Greaves Consumer Electricals Ltd.

Following the merger announcement on Saturday, the Butterfly Gandhimathi stock dropped 5% to ₹1,194.90 apiece on the National Stock Exchange (NSE) today.

Upon merger, the public shareholders of Butterfly as on the record date will receive 22 equity shares of Crompton for every 5 equity shares held by them in Butterfly, as a consideration for the merger. Post-merger, the public shareholders of Butterfly will hold around 3% stake in the combined entity.

"The merger will unlock various revenue and cost synergies, achieve economies of scale by pooling the combined resources and provide an impetus to grow across all parts of India," the two companies said in a statement.

"The combined entity is expected to benefit from pooling of human capital that has diverse skills, talent, and vast experience to compete in an increasingly competitive industry," they said.

The merger comes a year after Crompton Greaves Consumer Electricals said it will acquire a controlling stake in Butterfly Gandhimathi Appliances. In February 2022, the Mumbai-based consumer durables company had signed agreements with promoters of kitchen appliance maker Butterfly Gandhimathi to acquire up to 55% stake at ₹1,403 per share for ₹1,379.68 crore.

Chennai-based Butterfly makes mixer grinders, table top wet grinders, pressure cookers, stainless steel vacuum flasks, LPG stoves and non-stick cookware.

"The merger is an important strategic step in the company's journey and will help unlock the full potential of the combined businesses. It will enable a faster execution of our Go-To Market strategy and enable greater focus on product innovation. We are confident that this will create significant value for all of our stakeholders," said Shantanu Khosla, managing director, Crompton.

The merger is expected to enable more efficient allocation of capital and result in simplification of the corporate structure.

"The proposed merger will enable Butterfly to better leverage the pan-India reach of Crompton, integrate more closely with Crompton's consumer appliances business and tap cross-selling opportunities," said Rangarajan Sriram, managing director, Butterfly.

The merger is subject to regulatory approvals including approval of the stock exchanges, SEBI, the respective shareholders and creditors of each of the companies and NCLT (Mumbai and Chennai benches).

Crompton currently holds a 75% stake in Butterfly Gandhimathi. Following the merger, Butterfly's minority shareholders will hold 3% stake in the company.

Foreign brokerage CLSA has an "outperform" rating on Crompton with a target price of ₹350 per share. According to CLSA, realisation of this synergy, as well as improving market share and margins, will be key to a rerating of the stock. Nomura too has maintained its "buy" rating on the stock with a target price of ₹377.