Sell Crompton Greaves- Power business recovery likely in 2HFY12; Anand Rathi

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Crompton Greaves
Power business recovery likely in 2HFY12; maintain Sell
Weaker power systems business and adverse currency checked
Crompton’s growth. Revenue rose 8% yoy to `24.5bn and net
profit, aided by lower interest and tax, rose 15% yoy to `2.3bn.
Deferred off-take due to slower execution and keen competition
would weigh on the T&D market in the near future.

 Slipping Power Systems. Consumer (30% yoy) and Industrial
(22% yoy) aided revenue growth. Power Systems was down 1%
yoy. While standalone order book rose 25% to `37bn,
consolidated order book saw a 15% increase to `70bn.
 Adverse currency for subsidiaries. Sales and profit (standalone)
grew 15% yoy and 30% yoy respectively. Despite 13% volume
growth (in local currency), adverse currency led to subdued
subsidiaries’ performance, with revenue and profit falling 2% yoy
and 15% yoy respectively.
 Management guidance. PowerGrid orders are expected in
2HFY12 and revival in the distribution transformer market for
subsidiaries is visible, owing to the renewable energy segment.
Management expects 16-18% yoy growth (standalone) and 11-
12% (local currency) in subsidiaries. Segmental growth would be
10-11% for Power Systems, 20% for Industrials and 25% for
Consumer.
 Valuation and risks. We value the stock at `288, based on 18x
FY12e EPS. Risks: faster revival in US/Europe; favorable
currency and better pricing in the home market