Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Crompton Greaves (CRG)
Industrials
Mgmt seemed more cautious than usual on slow power sector, competition rise.
Key highlights from the 3Q call were (1) guides for strong 16-18% growth in FY2012E;
4Q likely to be in line 9M trend, (2) domestic inflows remain moderate; international
orders see sharp pick-up but still has high scope to further scale up, (3) sharp decline in
realizations led by mix, competition rise—but already absorbed in current margins and
(4) power segment continues to be impacted by client-side delays—to pick up in FY12E.
Moderate domestic inflows; but overseas orders see sharp rise—with potential to further scale up
Crompton reported 8% yoy decline in domestic order inflows in 3QFY11—but backlog records a
strong 25% yoy growth. The implied power segment inflows were at Rs4.6 bn (adjusting sales of
consumer and industrial from total inflows) during the quarter, up 8% yoy. Power segment
inflows for 9MFY11 recorded a growth of 11% over 9MFY10 inflows. Overseas inflows were Rs10
bn which is 36% higher than the quarterly average of Rs7.3 bn in FY2010. However, this inflow
still has significant room to scale up versus 1HFY09 (pre-recession) qtrly inflow run rate of Rs15 bn.
4Q to maintain 9M growth trend; guides for strong 16-18% revenue growth in FY2012E
Crompton management has guided for strong 16-18% growth in standalone business in FY2012E
and similar growth (10-12%) in the overseas subsidiaries. The standalone growth would be led by
10-12% growth in the power segment, 18-20% growth in industrials and 25%+ growth in
consumers. In 4QFY11E the revenues are expected to continue the trend witnessed in 9MFY11—
flat power business and strong 20%+ growth in the industrials and consumer segments. Overseas
subsidiaries are expected to record a 10-12% growth (in Euro terms) also aided by low base effect.
Sharp decline in realizations on higher competition, mix – already absorbed in current margins
The management cited a sharp decline in average (per MVA) realizations of orders – execution
growth of about 31% in MVA terms but only 2-3% in turnover numbers. The sharp decline in
realizations was primarily attributed to unfavorable mix and heightened competition – cited sharp
pricing cuts from Chinese and Korean players. The company has maintained its margins in FY2011
so far primarily in efforts towards improving operating efficiencies (reflected as lower contribution
margins being offset by improvement in employee and other expenses as a percentage of sales).
Reiterate BUY on diversified business, overseas business recovery and strong balance sheet
We retain our estimates of Rs14.4 and Rs16.2 for FY2011E and FY2012E, respectively. We retain
our BUY rating with a target price of Rs310/share based on (1) diversified business profile across
geographies and segments, (4) strong cash flow generation characteristics, (2) strong pick-up
witnessed in overseas subsidiaries in the past quarters, and (3) strong balance sheet.
Domestic order inflows remain moderate but backlog up 25% yoy
Crompton reported a 9MFY11-end consolidated order backlog of Rs70 bn (up 15% yoy)
and standalone backlog of Rs37 bn (up 25% yoy). This implies 3QFY11 order inflows of
Rs23 bn at the consolidated level and Rs13 bn at the standalone level. Standalone orders
recorded a yoy decline of about 8% in 3QFY11 and was about 9-10% lower than the
average quarterly inflows in 9MFY10.
The implied power segment inflows were at Rs4.6 bn (adjusting sales of consumer and
industrial from total inflows) during the quarter, up 8% yoy. Power segment inflows for
9MFY11 recorded a growth of 11% over 9MFY10 inflows.
Potential orders worth Rs2.5 bn from PGCIL in the offing
Crompton has been declared L1 for 17 transformers and 11 reactors from PGCIL –
potentially worth Rs2.5 bn
International orders see sharp pick-up but still has high scope to scale up
Overseas order inflows were Rs10 bn (Rs9.75 bn quarterly average in 9M) which is 36%
higher than the quarterly average of Rs7.3 bn in FY2010. However, this order inflow still has
significant room to scale up as 1HFY09 (pre-recession) order inflow was at a run rate of Rs15
bn per quarter.
Guides for strong 16-18% growth in FY2012E revenues
Crompton management has guided for about 16-18% growth in standalone business in
FY2012E and similar growth (10-12%) in the overseas subsidiaries. The standalone growth
would be led by 10-12% growth in the power segment, 18-20% growth in industrials and
25%+ growth in consumers. The potential pick-up of power segment is primarily based on
execution of existing order backlog. Margins are expected to remain flat on a yoy basis.
We expect the company to record a 16% yoy growth to Rs115 bn in FY2012E over FY2011E
revenue estimate to Rs99 bn. This would be led by (1) pick-up in growth in the power
segment of to about 18% (aided by low base of FY2011E), (2) continued strong growth of
about 18-20% in the consumers and industrials business and (3) 12% growth in
international subsidiaries (in Rupee terms).
4Q trend likely to be in line with 9MFY11 pattern
Management expects to end the year with relatively flat (2-3% yoy growth) revenues in the
power sector. Even this implies a strong 34% sequential increase in power revenues
(execution typically skewed towards 4Q) – potential miss from power business to be made
up by industrials and consumer business. The management expects the strong growth
momentum to continue in the standalone industrials and consumers segment of 20%+
growth.
Crompton management expects the overseas subsidiaries to record a 10-12% yoy growth in
4Q (in Euro terms). This implies a similar growth in the full-year numbers as well (9MFY11
growth of about 10-11% in Euro terms) – higher than the earlier guidance of 5-6% growth
in local currency terms. We note that part of this growth was aided by favourable base
effect which is likely to remain in 4QFY11E as well – Euro terms business declined by 17% in
4QFY10.
Sharp decline in realizations on higher competition and other issues
The management cited a sharp decline in average (per MVA) realizations of orders –
execution growth of about 31% in MVA terms but only 2-3% in turnover numbers. The
sharp decline in realizations was primarily attributed to increase in competition – cited sharp
pricing cuts from Chinese and Korean players.
Realization decline already absorbed in current margins; potential margin pressures
if competition and material prices trend continues
The company has maintained its margins in FY2011E so far primarily in efforts towards
improving operating efficiencies (reflected as lower contribution margins being offset by
improvement in employee and other expenses as a percentage of sales). However we
highlight potential risk of margin pressure with high competitive intensity in a weak demand
environment and rising commodity prices.
Client-side delays continue to impact power sector; expect pick-up only in FY12E
The slowdown in the power segment revenues was attributed to continued delays in
accepting deliveries of orders by several clients – as indicated in 1HFY11 as well. This
phenomenon was seen across both domestic and export orders. The export business of the
standalone entity in fact witnessed a yoy decline – both in revenues as well as inflows. The
management believes that this slowdown would continue in 4QFY11 and expects some
pick-up only in FY2012E. Standalone power segment reported sedate revenues of Rs17.3 bn
in 9MFY11 recording a modest 3.2% yoy growth. Power segment revenues grew by 2.1%
at the standalone level to Rs5.8 bn.
Full-year estimates imply moderate assumptions for 4QFY11E
We have currently built in full-year revenue of Rs99.7 bn (up 9% yoy) at the consolidated
level and Rs60 bn (up 13.7% yoy) at the standalone level. We expect margins to remain
relatively flat on a yoy basis both at the consolidated and standalone level.
Our full-year consolidated estimates imply a revenue growth of 14.6% at the consolidated
level (recorded 7% growth in 9MFY11). Full-year flat margins of 14% allows for some
correction (about 100 bps) in EBITDA margin in 4QFY11E. Full-year PAT of Rs9.2 bn implies a
PAT requirement of Rs2.9 bn in 4QFY11 - up 7% yoy; versus 14.6% growth recorded in
9MFY11.
At the standalone level, we expect 4QFY11E implied revenues of Rs18.2 bn, a moderate
growth of 12.6% over 4QFY10. Flat yoy margin for the full year allows for a 70-80 bps
decline in EBITDA margin. Full-year PAT of Rs6.8 bn implies a PAT requirement of Rs2 bn in
4QFY11 – up 6.6% yoy.
Retain estimates and target price of Rs310/share; reiterate BUY
We have retained our consolidated earnings estimates of Rs14.4 and Rs16.2 for FY2011E
and FY2012E, respectively. Our target price of Rs310/share is comprised of (1) Rs300/share
based on 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) diversified business profile across geographies and segments, (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
Mgmt seemed more cautious than usual on slow power sector, competition rise.
Key highlights from the 3Q call were (1) guides for strong 16-18% growth in FY2012E;
4Q likely to be in line 9M trend, (2) domestic inflows remain moderate; international
orders see sharp pick-up but still has high scope to further scale up, (3) sharp decline in
realizations led by mix, competition rise—but already absorbed in current margins and
(4) power segment continues to be impacted by client-side delays—to pick up in FY12E.
Moderate domestic inflows; but overseas orders see sharp rise—with potential to further scale up
Crompton reported 8% yoy decline in domestic order inflows in 3QFY11—but backlog records a
strong 25% yoy growth. The implied power segment inflows were at Rs4.6 bn (adjusting sales of
consumer and industrial from total inflows) during the quarter, up 8% yoy. Power segment
inflows for 9MFY11 recorded a growth of 11% over 9MFY10 inflows. Overseas inflows were Rs10
bn which is 36% higher than the quarterly average of Rs7.3 bn in FY2010. However, this inflow
still has significant room to scale up versus 1HFY09 (pre-recession) qtrly inflow run rate of Rs15 bn.
4Q to maintain 9M growth trend; guides for strong 16-18% revenue growth in FY2012E
Crompton management has guided for strong 16-18% growth in standalone business in FY2012E
and similar growth (10-12%) in the overseas subsidiaries. The standalone growth would be led by
10-12% growth in the power segment, 18-20% growth in industrials and 25%+ growth in
consumers. In 4QFY11E the revenues are expected to continue the trend witnessed in 9MFY11—
flat power business and strong 20%+ growth in the industrials and consumer segments. Overseas
subsidiaries are expected to record a 10-12% growth (in Euro terms) also aided by low base effect.
Sharp decline in realizations on higher competition, mix – already absorbed in current margins
The management cited a sharp decline in average (per MVA) realizations of orders – execution
growth of about 31% in MVA terms but only 2-3% in turnover numbers. The sharp decline in
realizations was primarily attributed to unfavorable mix and heightened competition – cited sharp
pricing cuts from Chinese and Korean players. The company has maintained its margins in FY2011
so far primarily in efforts towards improving operating efficiencies (reflected as lower contribution
margins being offset by improvement in employee and other expenses as a percentage of sales).
Reiterate BUY on diversified business, overseas business recovery and strong balance sheet
We retain our estimates of Rs14.4 and Rs16.2 for FY2011E and FY2012E, respectively. We retain
our BUY rating with a target price of Rs310/share based on (1) diversified business profile across
geographies and segments, (4) strong cash flow generation characteristics, (2) strong pick-up
witnessed in overseas subsidiaries in the past quarters, and (3) strong balance sheet.
Domestic order inflows remain moderate but backlog up 25% yoy
Crompton reported a 9MFY11-end consolidated order backlog of Rs70 bn (up 15% yoy)
and standalone backlog of Rs37 bn (up 25% yoy). This implies 3QFY11 order inflows of
Rs23 bn at the consolidated level and Rs13 bn at the standalone level. Standalone orders
recorded a yoy decline of about 8% in 3QFY11 and was about 9-10% lower than the
average quarterly inflows in 9MFY10.
The implied power segment inflows were at Rs4.6 bn (adjusting sales of consumer and
industrial from total inflows) during the quarter, up 8% yoy. Power segment inflows for
9MFY11 recorded a growth of 11% over 9MFY10 inflows.
Potential orders worth Rs2.5 bn from PGCIL in the offing
Crompton has been declared L1 for 17 transformers and 11 reactors from PGCIL –
potentially worth Rs2.5 bn
International orders see sharp pick-up but still has high scope to scale up
Overseas order inflows were Rs10 bn (Rs9.75 bn quarterly average in 9M) which is 36%
higher than the quarterly average of Rs7.3 bn in FY2010. However, this order inflow still has
significant room to scale up as 1HFY09 (pre-recession) order inflow was at a run rate of Rs15
bn per quarter.
Guides for strong 16-18% growth in FY2012E revenues
Crompton management has guided for about 16-18% growth in standalone business in
FY2012E and similar growth (10-12%) in the overseas subsidiaries. The standalone growth
would be led by 10-12% growth in the power segment, 18-20% growth in industrials and
25%+ growth in consumers. The potential pick-up of power segment is primarily based on
execution of existing order backlog. Margins are expected to remain flat on a yoy basis.
We expect the company to record a 16% yoy growth to Rs115 bn in FY2012E over FY2011E
revenue estimate to Rs99 bn. This would be led by (1) pick-up in growth in the power
segment of to about 18% (aided by low base of FY2011E), (2) continued strong growth of
about 18-20% in the consumers and industrials business and (3) 12% growth in
international subsidiaries (in Rupee terms).
4Q trend likely to be in line with 9MFY11 pattern
Management expects to end the year with relatively flat (2-3% yoy growth) revenues in the
power sector. Even this implies a strong 34% sequential increase in power revenues
(execution typically skewed towards 4Q) – potential miss from power business to be made
up by industrials and consumer business. The management expects the strong growth
momentum to continue in the standalone industrials and consumers segment of 20%+
growth.
Crompton management expects the overseas subsidiaries to record a 10-12% yoy growth in
4Q (in Euro terms). This implies a similar growth in the full-year numbers as well (9MFY11
growth of about 10-11% in Euro terms) – higher than the earlier guidance of 5-6% growth
in local currency terms. We note that part of this growth was aided by favourable base
effect which is likely to remain in 4QFY11E as well – Euro terms business declined by 17% in
4QFY10.
Sharp decline in realizations on higher competition and other issues
The management cited a sharp decline in average (per MVA) realizations of orders –
execution growth of about 31% in MVA terms but only 2-3% in turnover numbers. The
sharp decline in realizations was primarily attributed to increase in competition – cited sharp
pricing cuts from Chinese and Korean players.
Realization decline already absorbed in current margins; potential margin pressures
if competition and material prices trend continues
The company has maintained its margins in FY2011E so far primarily in efforts towards
improving operating efficiencies (reflected as lower contribution margins being offset by
improvement in employee and other expenses as a percentage of sales). However we
highlight potential risk of margin pressure with high competitive intensity in a weak demand
environment and rising commodity prices.
Client-side delays continue to impact power sector; expect pick-up only in FY12E
The slowdown in the power segment revenues was attributed to continued delays in
accepting deliveries of orders by several clients – as indicated in 1HFY11 as well. This
phenomenon was seen across both domestic and export orders. The export business of the
standalone entity in fact witnessed a yoy decline – both in revenues as well as inflows. The
management believes that this slowdown would continue in 4QFY11 and expects some
pick-up only in FY2012E. Standalone power segment reported sedate revenues of Rs17.3 bn
in 9MFY11 recording a modest 3.2% yoy growth. Power segment revenues grew by 2.1%
at the standalone level to Rs5.8 bn.
Full-year estimates imply moderate assumptions for 4QFY11E
We have currently built in full-year revenue of Rs99.7 bn (up 9% yoy) at the consolidated
level and Rs60 bn (up 13.7% yoy) at the standalone level. We expect margins to remain
relatively flat on a yoy basis both at the consolidated and standalone level.
Our full-year consolidated estimates imply a revenue growth of 14.6% at the consolidated
level (recorded 7% growth in 9MFY11). Full-year flat margins of 14% allows for some
correction (about 100 bps) in EBITDA margin in 4QFY11E. Full-year PAT of Rs9.2 bn implies a
PAT requirement of Rs2.9 bn in 4QFY11 - up 7% yoy; versus 14.6% growth recorded in
9MFY11.
At the standalone level, we expect 4QFY11E implied revenues of Rs18.2 bn, a moderate
growth of 12.6% over 4QFY10. Flat yoy margin for the full year allows for a 70-80 bps
decline in EBITDA margin. Full-year PAT of Rs6.8 bn implies a PAT requirement of Rs2 bn in
4QFY11 – up 6.6% yoy.
Retain estimates and target price of Rs310/share; reiterate BUY
We have retained our consolidated earnings estimates of Rs14.4 and Rs16.2 for FY2011E
and FY2012E, respectively. Our target price of Rs310/share is comprised of (1) Rs300/share
based on 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) diversified business profile across geographies and segments, (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.
No comments:
Post a Comment