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Crompton Greaves Limited Overweight
CROM.BO, CRG IN
Landis+Gyr reported as potential target for acquisition
• Crompton Greaves has shown interest in acquiring the European
company Landis+Gyr, as per Economic Times. Landis+Gyr is among
global leaders in smart metering products & services and energy
management solutions. It is a privately held company with a long history
(established 1896) in metering products. Between 1998-2002 it was part
of Siemens AG, till the latter decided to withdraw from this business.
Basic financial details available are dated- the company had a revenue of
US$1.36bn and EBITDA of ~US$161mn in 2009, as per DN&A. It has
over 5000employees and operates in over 30 countries across the globe.
According to ET, the company is valued at over US$1bn; in our view
publically available details are inadequate to judge equity value.
• CG’s M&A track record so far lends confidence, intention in-line
with vision 2015. In the past, CG has not overpaid for any of its
overseas acquisitions (see table). These acquisitions starting with
Pauwels in May-2005 were of small-ticket size and helped bridge the
technology and product portfolio gap between CG and its MNC peers in
India (ABB, Siemens, Areva T&D). CG overseas subsidiary revenue has
grown from Rs16bn in FY06 to ~Rs36bn in FY11 (18% CAGR), and
more importantly EBITDA margins in overseas business have improved
from ~5.2% to over 11%. Potential acquisition of Landis+Gyr will be a
step towards achieving CG’s vision of becoming a US$8bn revenue
company by 2015, from US$2.2bn currently.
• CG's balance sheet can be levered up for an acquisition. We estimate
CG's net-worth at ~Rs33.3bn (US$745mn); the company had net-cash
and cash equivalents of ~Rs4.7bn by FY10-end. We estimate FCF of
~Rs6bn and EBIT of ~Rs12.35bn in FY11. Although details on % stake
being eyed and valuations are not available, in our view CG can fund a
medium sized acquisition (~US$500mn) using debt. Promoter
shareholding is ~40.92% and equity dilution could be avoided, in our
view.
• Landis+Gyr portfolio. It features the entire range of meters for
industrial, commercial, residential, grid, dynamic load management; and
gas meters. It offers smart grid solutions, other energy management
solutions and services. It partners with utilities and offer solutions for
preventing non-commercial losses and energy theft, both important in the
Indian context, given high AT&C losses of ~28%. In FY10 CG booked
Rs247mn revenue from sale of energy meters (0.3% of consol sales).
• Prima-facie the acquisition target appears synergistic with CG’s
product portfolio. CG remains our top pick in the T&D space. We await
further details on the potential deal.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Crompton Greaves Limited Overweight
CROM.BO, CRG IN
Landis+Gyr reported as potential target for acquisition
• Crompton Greaves has shown interest in acquiring the European
company Landis+Gyr, as per Economic Times. Landis+Gyr is among
global leaders in smart metering products & services and energy
management solutions. It is a privately held company with a long history
(established 1896) in metering products. Between 1998-2002 it was part
of Siemens AG, till the latter decided to withdraw from this business.
Basic financial details available are dated- the company had a revenue of
US$1.36bn and EBITDA of ~US$161mn in 2009, as per DN&A. It has
over 5000employees and operates in over 30 countries across the globe.
According to ET, the company is valued at over US$1bn; in our view
publically available details are inadequate to judge equity value.
• CG’s M&A track record so far lends confidence, intention in-line
with vision 2015. In the past, CG has not overpaid for any of its
overseas acquisitions (see table). These acquisitions starting with
Pauwels in May-2005 were of small-ticket size and helped bridge the
technology and product portfolio gap between CG and its MNC peers in
India (ABB, Siemens, Areva T&D). CG overseas subsidiary revenue has
grown from Rs16bn in FY06 to ~Rs36bn in FY11 (18% CAGR), and
more importantly EBITDA margins in overseas business have improved
from ~5.2% to over 11%. Potential acquisition of Landis+Gyr will be a
step towards achieving CG’s vision of becoming a US$8bn revenue
company by 2015, from US$2.2bn currently.
• CG's balance sheet can be levered up for an acquisition. We estimate
CG's net-worth at ~Rs33.3bn (US$745mn); the company had net-cash
and cash equivalents of ~Rs4.7bn by FY10-end. We estimate FCF of
~Rs6bn and EBIT of ~Rs12.35bn in FY11. Although details on % stake
being eyed and valuations are not available, in our view CG can fund a
medium sized acquisition (~US$500mn) using debt. Promoter
shareholding is ~40.92% and equity dilution could be avoided, in our
view.
• Landis+Gyr portfolio. It features the entire range of meters for
industrial, commercial, residential, grid, dynamic load management; and
gas meters. It offers smart grid solutions, other energy management
solutions and services. It partners with utilities and offer solutions for
preventing non-commercial losses and energy theft, both important in the
Indian context, given high AT&C losses of ~28%. In FY10 CG booked
Rs247mn revenue from sale of energy meters (0.3% of consol sales).
• Prima-facie the acquisition target appears synergistic with CG’s
product portfolio. CG remains our top pick in the T&D space. We await
further details on the potential deal.
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