Butterfly Gandhimathi slips 5% on merger with Crompton Greaves Consumer

Shares of Butterfly Gandhimathi Appliances slipped 5 per cent to Rs 1,200 in Monday’s intra-day trade, after the company announced merger with Crompton Greaves Consumer. Shares of Crompton, meanwhile, were up 1 per cent at Rs 294.10, as against 0.22 per cent rise in the S&P BSE Sensex, at 09:30 am.

Upon merger, Crompton Greaves will issue 22 fully paid up shares of Rs 2 each for every five fully paid up shares of Rs 10 each of Butterfly. The transaction, therefore, would result in a single listed entity, and Butterfly will be dissolved post merger.

The scheme is expected to be effective post 12-14 months. Post-merger, the public shareholders of Butterfly will hold around 3 per cent 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 impetus to grow across all parts of India.

The management of both companies believe that the combined entity will benefit from pooling of human capital with diverse skills, talent, and vast experience to compete in an increasingly competitive industry.

Additionally, they said it will enable more efficient allocation of capital and result in simplification of the corporate structure.

Analysts believe that business synergies were already in place as Crompton Greaves had 75 per cent stake in Butterfly.

"Post acquisition, Butterfly contributes around 21 per cent to Crompton Greaves' revenue. At the given swap ratio there will be a 3 per cent equity dilution for Crompton Greaves. Since Butterfly's business is already a part of Crompton, we do not see a major impact of the amalgamation on the stock price," said analysts at ICICI Securities.

Butterfly Gandhimathi Tech view

Support: Rs 1,176

Shares of Butterfly Gandhimathi have been on a downtrend since January 17, 2023. During this period, they have declined 17 per cent on the BSE. Since price and moving averages' action is signalling a weak trend, the stock may inch towards the lower end of the Bollinger band on the daily chart, at Rs 1,176. 

The moving averages on the weekly chart, however, may support a bounce back. Also, the stock is testing its major support - 100-WMA (Weekly Moving Average) on the weekly scale at Rs 1,229. In case, the stock manages to sustain above the same on a closing basis, the existing downtrend may get arrested. If that happens, the upside may be tested at Rs 1,270, followed by Rs 1,365.

Crompton Greaves Tech View

Outlook: Bulls attempting a bounce back

Target: Rs 331, Rs 356

The stock of Crompton Greaves is attempting a bounce back with a longdrawn downfall, which started in December last year. As per momentum oscillators, including slow stochastic and MACD, bulls are trying to regain some lost ground. However, a negative price-to-moving averages axtion may cap upside.

Overall, the stock may attempt to touch Rs 331 (100-DMA), once the immediate hurdle of Rs 308 is crossed. Beyond this, the next target is Rs 356 (200-DMA).On the downside, support stays at Rs 279 (lower end of the Bollinger Band on the daily chart).  

(With inputs from Nikita Vashisht)