Crompton Greaves - full-year earnings could beat estimates.:: Kotak Sec

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Crompton Greaves (CRG)
Industrials
Currency turn favors overseas subsidiaries; full-year earnings could beat estimates.
Crompton reported in-line results at the consolidated as well as standalone level.
Subsidiaries (adjusted for currency movement) recorded very strong revenue growth of
16.8% yoy. We believe overseas subsidiaries may help the company beat estimates led
by a base effect and a partial reversal in the Euro depreciation. Industrials and consumer
segments continue on a strong growth path, power remains relatively sedate.


In-line results at revenue as well as margin level
Crompton reported 2QFY11 consolidated revenues of Rs24 bn, up 9.5% yoy and marginally above
(about 1.5%) our estimate of Rs23.6 bn. EBITDA margin remained relatively flat at 13.9% in
2QFY11 – in line with our estimates (13.8%). The company reported net PAT of Rs2.1 bn in
2QFY11, up 10.5% yoy, versus our estimate of Rs2.05 bn. Standalone results were also in line
with our estimates. Standalone 2QFY11 revenues of Rs14.4 bn were up 14% yoy and about 2%
higher than our estimate. EBITDA margin was down 50 bps yoy to 16% (in line with estimates) in
2QFY11 led by higher raw material expenses as a percentage of sales.
Strong growth in international subsidiaries (in Euro terms); potential for full-year earnings surprises
Crompton reported a moderate 3.5% yoy revenue growth in subsidiary revenues to Rs9.5 bn in
2QFY11. However, adjusted for the Euro depreciation versus the Rupee (of 13.3%) the subsidiary
revenues would have recorded a strong growth of 16.8% yoy in Euro terms. This was also aided
by low base effect (13.7% yoy decline in 2QFY10 revenues in local currency terms). The overseas
subsidiaries may help deliver a positive surprise versus our estimates led by low base effect of
2HFY10. Furthermore, adverse currency movement may also wear off partially as Euro is already at
Rs62.3 versus Rs60 that was average of 2QFY11.
Strong growth continues in industrial and consumer segments; power segment remains sedate
Crompton’s standalone revenue growth was primarily led by very strong consumer and industrial
segments which recorded 24% and 17.6% yoy growth, respectively. The power revenues showed
some recovery versus a weak 1Q but still remained relatively sedate growing by about 6.6% at the
standalone and 6.8% at the consolidated level. This is versus relatively flat revenue growth in 1Q.

Revise estimates; Reiterate REDUCE with a revised target price of Rs330/share
We revise our estimates to Rs14.5 and Rs16.9 from Rs14 and Rs16.3 for FY2011E and FY2012E.
We reiterate our REDUCE rating with a revised TP of Rs330 (from Rs320) based on (1) limited
upside to our target price, (2) limited to potential for upside to our estimates, (3) may not fully
benefit from the domestic capex revival, and (4) relatively expensive valuations.