crompton greaves 050814

8/11/2019 Crompton Greaves 050814

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Visit us at www.sharekhan.com August 05, 2014

Crompton Greaves Reco: Buy

Consumer durables drove Q1 profit; demerger in the offing CMP: Rs195

Promoters

43%

FII

20%

DII

22%

Others

15%

70

90110

130

150

170

190

210

230

Aug-13

Oct-13

Dec-13

Feb-14

Apr-14

Jun-14

Aug-14

Company details

Price chart

Shareholding pattern

Price performance

(%) 1m 3m 6m 12m

Absolute -1.8 23.6 78.8 148.9

Relative -1.2 6.6 38.9 82.3

to Sensex

Price target: Rs225

Market cap: Rs12,496 cr

52-week high/low: Rs219/75

NSE volume: 47.6 lakh(no. of shares)

BSE code: 500093

NSE code: CROMPGREAVE

Sharekhan code: CROMPGREAVE

Free float: 36.7 cr(no. of shares)

Key points

In Q1FY2015 Crompton Greaves Ltd (CGL) reported a revenue growth of 8% YoY

at the consolidated level to Rs3,442 crore, driven by a steady growth in the

consumer durable (domestic) business and a recovery in the power system

(overseas) business. The profitability was also mainly contributed by the

consumer durable business whose margin expanded by 94BPS YoY to 12.4%. The

consolidated operating profit grew by 19% to Rs173 crore in Q1FY2015 but due

to higher interest and depreciation charges the net profit grew by 6% YoY to

Rs64 crore, which was in line with our estimate. During the post-results conference call, the management shared that the problem

areas (the Belgian and Canadian businesses and the power system business in

the USA) have stabilised and are about to break even at the operating level.

Moreover, there are clear signs of an improvement in the overseas business (as

evident from the strong order inflow in Q1FY2015) and the management hinted

that new orders have a better margin profile. Hence, the margin should improve

in the overseas business.

We believe the overseas business is on a recovery path; we expect it to largely

break even at the operating level in FY2015 but add value at the net level only

from FY2016. Further, a revival in the domestic demand environment could

benefit CGL. In the meanwhile, the management is looking to demerge theconsumer durable business which could unlock value. In view of these positives

we remain bullish on the stock and retain our Buy recommendation on CGL with

an unchanged price target of Rs225 (20x the FY2016E earnings).

Results Rs cr

Particulars Q1FY15 Q1FY14 YoY % Q4FY14 QoQ %

Total income from operation 3,442 3,195 7.7 3,806 (9.6)

Total expenditure 3,269 3,050 7.2 3,618 (9.7)

Operating profits 173 145 19.1 188 (8.1)

Other income 39 35 9.2 84 (54.1)

EBIDTA 211 180 17.2 272 (22.3)Interest 24 20 21.4 30 (19.8)

Depreciation 67 53 27.2 71 (6.0)

PBT 120 107 11.5 170 (29.6)

Tax 55 46 NA 90 (38.8)

PAT before MI 65 61 6.2 81 (19.4)

Minority interest (0) 1 1

Shares of profits 1 2 17 NA

PAT after MI (Adj.) 64 60 6.1 64 0.3

EO. - - -

Reported PAT 64 60 6.1 64 0.3

Ratios (%) BPS BPS

OPM 5.0 4.5 48 4.9 8

PAT M 1.9 1.9 (3) 1.7 18Tax rate 45.9 43.2 270 52.7 (686)


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Stock Update August 05, 20142

sharekhan stock update

Revenue growth driven by recovery in overseas business

and growth in consumer segment

On a consolidated basis, the top line grew by 8% year on

year (YoY) to Rs3,442 crore mainly driven by a healthy

growth in the power system business (up 10% YoY) and

the consumer durable business (up 7% YoY); however, the

revenues of the industrial system business witnessed amarginal decline (down 2% YoY) in Q1FY2015.

The healthy performance in the power system business

was mainly due to a steady performance (a 13% growth

YoY) in the international subsidiary (thanks to a recovery

post-restructuring) along with a minuscule growth in the

domestic business. The overseas industrial system business

also witnessed a strong recovery with a 19% revenue

growth; however, the same business performed poorly in

India (down 7% YoY). Consequently, at the consolidated

level the industrial segment reported a softer number

with a 2% decline YoY.

The power system and industrial system businesses in India

remained sluggish while there was a recovery in the

international operations. On the other hand, the domestic

consumer business registered a 7% growth on a high base

of Q1FY2014. The growth in the domestic consumer

business was driven by a jump in the fan and pump business

in the quarter.

[PBIT] level) and offset the profit from the power system

business (a PBIT of Rs30 crore). The consolidated operating

profit grew by 19% YoY to Rs173 crore during the period.

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

Q1FY13

Q2FY13

Q3FY13

Q4FY13

Q1FY14

Q2FY14

Q3FY14

Q4FY14

Q1FY15

-4.0%-2.0%0.0%2.0%4.0%6.0%8.0%10.0%12.0%14.0%16.0%18.0%

Consol Sales Grow th(%)- YoY

Consolidated sales (Rs cr)

(10.0)

(5.0)

-

5.0

10.0

15.0

20.0

Q1FY13

Q2FY13

Q3FY13

Q4FY13

Q1FY14

Q2FY14

Q3FY14

Q4FY14

Q1FY15

Pow er system Industr ial System Consumer Products

Segmental consolidated PBIT margin (%)

Consumer durables driving profit; overseas business

remains positive at operating level

CGL (consolidated) reported an operating profit margin

(OPM) of 5%, an expansion of 48 basis points (BPS) mainly

due to a margin improvement in the consumer durable

business in Q1FY2015. The profitability too was mainly

driven by the consumer durable business, which contributed

more than 60% of the total profit and recorded a growth.

On the other hand, the industrial profit declined by 20% (a

loss of Rs31 crore at the profit before interest and tax

Net profit growth restricted to 6% on higher interest

and depreciation

The profit after tax (PAT) grew by 6% YoY to Rs64 crore in

Q1FY2015 despite a 19% growth at the operating profit

level because of higher depreciation and interest costs.

In the domestic operations, due to a lower other income,

the PAT reported a flat growth at Rs126 crore despite a

12% growth at the operating level.

Conference call highlights

Order book and inflow: The consolidated order inflow

stood at Rs2,900 crore, a growth of 19% YoY, due to a

robust growth of 81% YoY in the international subsidiary

(mainly in the automation and system businesses)

during Q1FY2015. The order inflow in the domestic

market remained weak (a decline of 24% YoY) due to

the general election during the period. However, the

management expects the order inflow activity in the

domestic business to show an uptick from Q3FY2015

onwards while the international business is expected

to grow. The consolidated order backlog declined by

2% to Rs9,585 crore in the same quarter.

9,1

72

9,4

00

9,2

32

9,1

26

9,7

71

9,7

43

10,0

74

9,2

93

9,5

85

2,1

26

4,2

06

4,1

84

3,7

99

4,3

18

3,9

70

3,9

73

3,5

85

3,6

58

-

2,000

4,000

6,000

8,000

10,000

12,000

Q1FY13

Q2FY13

Q3FY13

Q4FY13

Q1FY14

Q2FY14

Q3FY14

Q4FY14

Q1FY15

Order Book- Consolidated (Rs cr) Order Book -Standalone (Rs cr)

Order backlog trend (Rs cr)


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Result snapshot Rs cr

Performance YoY Standalone Subsidiaries (derived) Consolidated

Q1FY15 Q1FY14 Grwth (%) Q1FY15 Q1FY14 Grwth (%) Q1FY15 Q1FY14 Grwth (%)

Net sales 1,905 1,841 3.5 1,537 1,354 13.5 3,442 3,195 7.7

Operating profits 171 153 12.0 2 (8) NA 173 145 19.1

Other Income 20 30 -32.1 18 5 NA 39 35 9.2

Interest (4) (7) -36.4 29 27 7.2 24 20 21.4

Depreciation 24 21 12.8 43 32 36.8 67 53 27.2

PBT 172 168 2.2 (52) (60) -14.3 120 107 11.5

Tax 45 43 4.7 10 3 NA 55 46 18.5

Adj. PAT 127 125 1.3 (63) (65) -3.1 64 60 6.1

OPM 9.0 8.3 69 0.1 -0.6 68 5.0 4.5 48

NPM 6.6 6.8 (14) -4.1 -4.8 70 1.9 1.9 (3)

Tax rate (%) 26.2 25.6 63 -19.2 -5.6 (1,359) 45.9 43.2 270

Problematic overseas subsidiaries stabilise; better

days ahead: The Belgian plant has stabilised now;

further, the first phase of restructuring in the Canadian

plant is complete (15% of the staff has been removed)

and the power system business in the USA is also

undergoing a similar restructuring exercise. The good

news is that the problematic plants in Belgium, Canadaand the USA (power systems) are close to breaking

even. But the interest cost of the international business

continues to pinch the bottom line. On the positive

side, the new orders won by the company especially

the power transformer orders have significantly better

margins (900BPS higher) than the existing orders. The

better margin numbers are expected to reflect in the

companys performance from mid 2015.

Domestic consumer remains king now but power and

industrials could revive in India soon: The stand-alone

consumer durable division continues to perform well,

as per the expectation of the management, supported

by an improvement in fans, pumps and lightings.

Currently, the industrial and power system divisions

remain sluggish but the management sees green shoots,

after the coming of a development-focused

government at the centre.

Consumer durable demerger; potential value

unlocking: The management of CGL has plans to

demerge the consumer durables division into a

separate entity and list it on the bourses. It is

evaluating various options for the same and would

finalise the detailed structure in the next two to three

months. We believe there could be value unlocking

from this exercise, subject to the deal structure.

Moreover, it is important to note that the managementhas categorically stated that the company has no plans

to bring in new partners in the demerger structure

and that the deal would be for the benefit of the

existing shareholders.

Valuations

Particulars FY12 FY13 FY14 FY15E FY16E

Net sales (Rs cr) 11,249 12,094 13,481 14,862 16,543

Operating profit (Rs cr) 810 383 682 999 1,222

OPM (%) 7.2 3.2 5.1 6.7 7.4

Adj PAT (Rs cr) 380 85 244 540 708

Adjusted EPS (Rs) 5.9 1.3 3.9 8.6 11.3

Growth YoY (%) (59.0) (77.8) 195.7 120.9 31.1

PER (x) 32.9 147.9 50.0 22.6 17.3

P/B (x) 3.5 3.5 3.4 3.0 2.7

EV/EBIDTA (x) 14.7 33.6 19.5 13.0 10.2

RoCE (%) 14.7 5.5 10.4 14.5 17.1

RoNW (%) 10.5 (1.0) 6.7 13.4 15.6

Div yield (%) 0.7 0.6 0.5 1.1 1.4

Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a position in the companies mentioned in the article.



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