Crompton Greaves -Best lies behind; maintain Sell - Anand Rathi

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Crompton Greaves
Best lies behind; maintain Sell
We expect growth to taper for Crompton Greaves owing to
subsidiaries continuing to witness slowdown with recovery still
distant. Standalone business growth would be impacted by
deferred off-take, intense competition and unfavorable base. We
maintain Sell on moderate growth and expensive valuations.

 Flat growth in profitability. Operating leverage owing to
standardized designs and integrated material procurement which
led to strong growth in FY10 has played out. We expect margin to
be flat at best, or decline, in FY11-12 as raw material costs rise.
 Subsidiaries’ growth still susceptible to slowdown. Slowdown
in US/Europe, lack of financing for new projects and a strong
rupee would check growth in the subsidiaries’ business. Despite
growth in local currency, we expect 5% yoy dip in FY11e revenue.
 Standalone growth to taper. Deferred off-take in the power
systems business and higher base effect in Consumer and
Industrials would retard growth in the standalone business.
 Change in estimate. We raise our FY11e and FY12e net profit
by 5% each, as we increase our operating margin by 50bps.
 Valuation and risks. We raise our target price to `288 from
`270, which is 18x FY12e EPS. Risks: faster revival in
US/Europe; favorable currency; better pricing in domestic market.