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Crompton Greaves (CRG)
Industrials
In-line results; domestic power sedate; BUY as diversified presence buffers risks.
Crompton reported in-line results at the revenue and margin front. PAT of Rs2.3 bn was
10% ahead of estimates due to lower-than-expected tax rate. Power segment remained
sedate (flat yoy revenues) in 9M, while industrials and consumer grew strongly.
Reiterate BUY on diversified business (across segments and geographies), overseas
business recovery, strong execution and balance sheet.
In-line results; PAT-level outperformance primarily on lower-than-expected tax rate (unsustainable)
Crompton reported moderate revenue growth of 6.7% yoy in 3QFY11 to Rs24 bn with relatively
flat EBITDA margin (of 14.2%) on a yoy basis. This was broadly in line with our estimates. However,
the company reported a net PAT of Rs2.3 bn, up 15.5% yoy and about 10% ahead of our
estimate. The PAT-level outperformance was primarily due to lower-than-expected effective tax
rate of 23% (our estimate of 32%) for the quarter - likely to be unsustainable.
Build in some conservatism in estimates on continued lack of traction in domestic power perf.
The power segment revenues of Crompton continued to remain relatively sedate in this quarter as
well. Power segment revenues recorded a marginally growth of 2.1% on a yoy basis at Rs5.8 bn in
3QFY11 and 3% in 9MFY11. We have accordingly reduced our full-year execution growth
estimate to 2.5% (from 10% earlier) building in possibility that this segment may not recover
materially in 4QFY11E as well. The revenue growth was led by the consumer and industrials
segments which registered strong 30% and 23% yoy growth, respectively.
International business growth continues (in Euro terms); although some moderation versus 2Q
Adjusted for the Euro depreciation versus the Rupee (of 11.7%), the overseas subsidiary revenues
would have recorded a strong growth of 9.3% yoy in Euro terms. This was also aided by low base
effect (11.4% yoy decline in 3QFY10 revenues in local currency terms); which is likely to continue
in 4QFY11 as well. Note that the growth momentum has reduced marginally versus 2QFY11 which
had witnessed a strong 16.8% yoy growth in Euro terms.
Revise estimate; reiterate BUY with a revised target price of Rs310/share
We have revised our estimates to Rs14.4 and Rs16.2 (from Rs14.5 and Rs17.3) for FY2011E and
FY2012E, respectively based on lower domestic power execution some moderation in international
subsidiary performance. We acknowledge that earnings cut may be harsh on in-line results but we
have tried to build in some conservatism based on continued power segment disappointment and
weaker industrial capex recovery. We retain our BUY rating with a revised TP of Rs310 (from Rs340)
based on strong overseas recovery, diversified business and strong balance sheet.
Moderate revenue growth and flat margins - broadly in line with estimates
Crompton reported consolidated revenues of Rs24 bn in 3QFY11 recording a moderate yoy
growth of about 6.7%, in line with our estimates. The consolidated margins remained
relatively flat on a yoy basis at 14.2% – marginally ahead of our estimate of 13.8%.
Crompton reported a consolidated net profit of Rs2.3 bn, up 15.5% yoy about 10% ahead
of our estimate of Rs2.1 bn. The reason for outperformance at the PAT level is primarily due
to lower effective tax rate for the quarter (unlikely to be sustainable). Crompton reported an
average tax rate of about 23.3% at the consolidated level in 3QFY11 versus our estimate of
32%.
For the nine months ending December 31, 2010, Crompton reported consolidated revenues
of Rs71 bn, up 7% yoy. This along with an 50 bps yoy margin expansion led to a net profit
growth of 14.6% in 9MFY11 to Rs6.3 bn from Rs5.5 bn in 9MFY10.
In-line results at the standalone level as well
Standalone results were also broadly in line with our estimates. Crompton reported 3QFY11
revenues of Rs14 bn at the standalone level, up 14% yoy and about 3% higher than our
estimate. EBITDA margin was marginally down by about 30 bps yoy to 16.3% (about 60 bps
ahead estimates) in 3QFY11. The higher raw material expenses as a percentage of sales
(67.3% of sales in 3QFY11 versus 64% in 3QFY10) were offset by lower other expenses as a
percentage of sales. Lower-than-expected effective tax rate of 22.4% (versus estimate of
33%) in 3QFY11 led to a net PAT of Rs1.76 bn, about 16.7% ahead of our estimates.
For the nine months ending December 31, 2010, Crompton reported standalone revenues
of Rs41.8 bn, up 14% yoy. Margins remained relatively flat on a yoy basis at 16% for
9MFY11. The revenue growth and lower tax rates led to a net PAT of Rs4.8 bn, up 23% yoy.
Subsidiaries record moderate growth in Euro terms; marginal reduction in growth
momentum versus previous quarter
Crompton subsidiaries recorded a 2.4% yoy revenue decline (in Rupee terms) to Rs10 bn in
3QFY11 from Rs10.2 bn in 3QFY10. However, adjusted for the depreciation of the Euro
versus the Rupee by 11.7% (average 3QFY11 rate versus average 3QFY10 rate), the
subsidiary revenues would have recorded a growth of 9.3% yoy in local currency terms. This
growth was also aided by low base effect; revenues in 3QFY11 had recorded a 11.4% yoy
decline in local currency terms. Note that the growth momentum has reduced marginally
versus 2QFY11 which had witnessed a strong 16.8% yoy growth in local currency terms.
Revise estimates; reiterate BUY with a revised target price of Rs310/share
We have revised our consolidated earnings estimates to Rs14.4 and Rs16.2 from Rs14.5 and
Rs16.9 for FY2011E and FY2012E, respectively. The revision is based on lower execution
assumption for the domestic power business and marginally reduction in overseas business
performance. We acknowledge that our earnings cut may be harsh given an in-line quarter
performance. However we have tried to build in some conservatism based on disappointing
power segment revenues for three consecutive quarters and potentially weaker industrial
capex cycle recovery.
We have correspondingly revised our target price to Rs310/share (from Rs330/share)
comprised of (1) 19X March-12E earnings of Rs16.2 and (2) Rs10/share for stake in Avantha
Power.
We reiterate our BUY rating on the stock based on (1) strong pick-up witnessed in overseas
subsidiaries in the past quarters, (2) potential for strong near-term revenue growth and
margins in international subsidiaries on strong trend witnessed in 9M and low base effect of
4QFY10, (3) likely recovery in industrial investments reflected in stronger performance in the
industrial systems segment, (4) strong cash flow generation characteristics, (5) potential
upside from higher participation in substation package tenders, and (6) expected robust T&D
spending in XII plan.
Key risks to earnings relate to (1) aggressive competition and large capacity additions in the
domestic power T&D segment may pressure revenue growth and margins, and (2) slowerthan-
expected pick-up in international demand, (3) Euro area business (17% of business)
and Euro currency (translation), and (4) change in guard at top.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Crompton Greaves (CRG)
Industrials
In-line results; domestic power sedate; BUY as diversified presence buffers risks.
Crompton reported in-line results at the revenue and margin front. PAT of Rs2.3 bn was
10% ahead of estimates due to lower-than-expected tax rate. Power segment remained
sedate (flat yoy revenues) in 9M, while industrials and consumer grew strongly.
Reiterate BUY on diversified business (across segments and geographies), overseas
business recovery, strong execution and balance sheet.
In-line results; PAT-level outperformance primarily on lower-than-expected tax rate (unsustainable)
Crompton reported moderate revenue growth of 6.7% yoy in 3QFY11 to Rs24 bn with relatively
flat EBITDA margin (of 14.2%) on a yoy basis. This was broadly in line with our estimates. However,
the company reported a net PAT of Rs2.3 bn, up 15.5% yoy and about 10% ahead of our
estimate. The PAT-level outperformance was primarily due to lower-than-expected effective tax
rate of 23% (our estimate of 32%) for the quarter - likely to be unsustainable.
Build in some conservatism in estimates on continued lack of traction in domestic power perf.
The power segment revenues of Crompton continued to remain relatively sedate in this quarter as
well. Power segment revenues recorded a marginally growth of 2.1% on a yoy basis at Rs5.8 bn in
3QFY11 and 3% in 9MFY11. We have accordingly reduced our full-year execution growth
estimate to 2.5% (from 10% earlier) building in possibility that this segment may not recover
materially in 4QFY11E as well. The revenue growth was led by the consumer and industrials
segments which registered strong 30% and 23% yoy growth, respectively.
International business growth continues (in Euro terms); although some moderation versus 2Q
Adjusted for the Euro depreciation versus the Rupee (of 11.7%), the overseas subsidiary revenues
would have recorded a strong growth of 9.3% yoy in Euro terms. This was also aided by low base
effect (11.4% yoy decline in 3QFY10 revenues in local currency terms); which is likely to continue
in 4QFY11 as well. Note that the growth momentum has reduced marginally versus 2QFY11 which
had witnessed a strong 16.8% yoy growth in Euro terms.
Revise estimate; reiterate BUY with a revised target price of Rs310/share
We have revised our estimates to Rs14.4 and Rs16.2 (from Rs14.5 and Rs17.3) for FY2011E and
FY2012E, respectively based on lower domestic power execution some moderation in international
subsidiary performance. We acknowledge that earnings cut may be harsh on in-line results but we
have tried to build in some conservatism based on continued power segment disappointment and
weaker industrial capex recovery. We retain our BUY rating with a revised TP of Rs310 (from Rs340)
based on strong overseas recovery, diversified business and strong balance sheet.
Moderate revenue growth and flat margins - broadly in line with estimates
Crompton reported consolidated revenues of Rs24 bn in 3QFY11 recording a moderate yoy
growth of about 6.7%, in line with our estimates. The consolidated margins remained
relatively flat on a yoy basis at 14.2% – marginally ahead of our estimate of 13.8%.
Crompton reported a consolidated net profit of Rs2.3 bn, up 15.5% yoy about 10% ahead
of our estimate of Rs2.1 bn. The reason for outperformance at the PAT level is primarily due
to lower effective tax rate for the quarter (unlikely to be sustainable). Crompton reported an
average tax rate of about 23.3% at the consolidated level in 3QFY11 versus our estimate of
32%.
For the nine months ending December 31, 2010, Crompton reported consolidated revenues
of Rs71 bn, up 7% yoy. This along with an 50 bps yoy margin expansion led to a net profit
growth of 14.6% in 9MFY11 to Rs6.3 bn from Rs5.5 bn in 9MFY10.
In-line results at the standalone level as well
Standalone results were also broadly in line with our estimates. Crompton reported 3QFY11
revenues of Rs14 bn at the standalone level, up 14% yoy and about 3% higher than our
estimate. EBITDA margin was marginally down by about 30 bps yoy to 16.3% (about 60 bps
ahead estimates) in 3QFY11. The higher raw material expenses as a percentage of sales
(67.3% of sales in 3QFY11 versus 64% in 3QFY10) were offset by lower other expenses as a
percentage of sales. Lower-than-expected effective tax rate of 22.4% (versus estimate of
33%) in 3QFY11 led to a net PAT of Rs1.76 bn, about 16.7% ahead of our estimates.
For the nine months ending December 31, 2010, Crompton reported standalone revenues
of Rs41.8 bn, up 14% yoy. Margins remained relatively flat on a yoy basis at 16% for
9MFY11. The revenue growth and lower tax rates led to a net PAT of Rs4.8 bn, up 23% yoy.
Subsidiaries record moderate growth in Euro terms; marginal reduction in growth
momentum versus previous quarter
Crompton subsidiaries recorded a 2.4% yoy revenue decline (in Rupee terms) to Rs10 bn in
3QFY11 from Rs10.2 bn in 3QFY10. However, adjusted for the depreciation of the Euro
versus the Rupee by 11.7% (average 3QFY11 rate versus average 3QFY10 rate), the
subsidiary revenues would have recorded a growth of 9.3% yoy in local currency terms. This
growth was also aided by low base effect; revenues in 3QFY11 had recorded a 11.4% yoy
decline in local currency terms. Note that the growth momentum has reduced marginally
versus 2QFY11 which had witnessed a strong 16.8% yoy growth in local currency terms.
Revise estimates; reiterate BUY with a revised target price of Rs310/share
We have revised our consolidated earnings estimates to Rs14.4 and Rs16.2 from Rs14.5 and
Rs16.9 for FY2011E and FY2012E, respectively. The revision is based on lower execution
assumption for the domestic power business and marginally reduction in overseas business
performance. We acknowledge that our earnings cut may be harsh given an in-line quarter
performance. However we have tried to build in some conservatism based on disappointing
power segment revenues for three consecutive quarters and potentially weaker industrial
capex cycle recovery.
We have correspondingly revised our target price to Rs310/share (from Rs330/share)
comprised of (1) 19X March-12E earnings of Rs16.2 and (2) Rs10/share for stake in Avantha
Power.
We reiterate our BUY rating on the stock based on (1) strong pick-up witnessed in overseas
subsidiaries in the past quarters, (2) potential for strong near-term revenue growth and
margins in international subsidiaries on strong trend witnessed in 9M and low base effect of
4QFY10, (3) likely recovery in industrial investments reflected in stronger performance in the
industrial systems segment, (4) strong cash flow generation characteristics, (5) potential
upside from higher participation in substation package tenders, and (6) expected robust T&D
spending in XII plan.
Key risks to earnings relate to (1) aggressive competition and large capacity additions in the
domestic power T&D segment may pressure revenue growth and margins, and (2) slowerthan-
expected pick-up in international demand, (3) Euro area business (17% of business)
and Euro currency (translation), and (4) change in guard at top.
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