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4QFY11 results
Crompton’s 4QFY11 Ebitda fell by 7% YoY for the consolidated entity and 2% for
the standalone entity, as its margins declined by 323bps and 177bps respectively.
However, lower tax rates and higher other income helped the company post preexceptional
profits in-line with expectations. Domestic power business
disappointed yet again (revenues down 1% YoY), while industrial and consumer
businesses grew strongly by 20% YoY and international business by 26% YoY.
Working capital increased from 1.4% of revenue in FY10 to 9% in FY11 for the
standalone entity. We will look for more clarity on decline in operating margins,
lower tax rate, exceptional subsidiary loss and outlook on domestic power
business in conference call tomorrow and revise our earnings post that.
Sharp fall in Ebitda margins
Having posted flat or expanding margins for 11 successive quarters, Crompton’s
margins fell by 323bps for the consolidated entity and 177bps for the standalone
business in 4QFY11. This meant that the company’s consolidated Ebitda declined by
7% YoY, and came 11% lower than expectations. Material costs rose by 231bps while
overhead costs increased by 201bps. Industrial business faced the sharpest margin
decline by 10.64ppt, from 25.6% in 4QFY10 to 14.9% to 4QFY11.
Lower tax rates and higher other income help post in-line profits
Other income increased by 42% YoY (289% QoQ) to Rs468m. Moreover, effective tax
rate for the standalone entity stood at 16.7% (cf. our expectation of 28.5%), helping
the company post pre-exceptional profits in-line with our expectations. Crompton
recorded an exceptional loss of Rs332m in 4QFY11 in relation to claim by a customer
for supply of products by one of Crompton’s subsidiary prior to its acquisition.
Domestic power disappoints, strong growth in overseas business
Revenues for domestic power business fell by 1% YoY, while industrial and consumer
businesses continued to grow strongly (revenue growth of c.20% YoY for both).
International revenues also expanded sharply by 26% YoY, to Rs11.4bn. Consequently,
consolidated revenues stood at Rs29bn, 8% higher than expectations.
Lengthening working capital cycle
Crompton’s working capital for the standalone entity has gone up from Rs715m (1.4%
of revenues) at the end of FY10 to Rs5.4bn (9% of revenues) now. Inventories and
debtors have increased by 25-30% (to 25 inventory days and 93 debtor days) while
loans and advances have more than doubled, from Rs1.5bn to Rs3.1bn.
We will relook at our numbers post the conference call
We will look for clarity on decline in profit margins, lower tax rate, exceptional loss in
subsidiary, lengthening working capital cycle and outlook on domestic power business
in analyst call tomorrow. We will revise our earnings post the call, and there could be a
downgrade if material cost pressures persist. Crompton has named Laurent Demortier
as the new Managing Director. He has 11 years experience with Alstom, of which 8
years are within its T&D business. Mr Trehan will continue to remain on the Board.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
4QFY11 results
Crompton’s 4QFY11 Ebitda fell by 7% YoY for the consolidated entity and 2% for
the standalone entity, as its margins declined by 323bps and 177bps respectively.
However, lower tax rates and higher other income helped the company post preexceptional
profits in-line with expectations. Domestic power business
disappointed yet again (revenues down 1% YoY), while industrial and consumer
businesses grew strongly by 20% YoY and international business by 26% YoY.
Working capital increased from 1.4% of revenue in FY10 to 9% in FY11 for the
standalone entity. We will look for more clarity on decline in operating margins,
lower tax rate, exceptional subsidiary loss and outlook on domestic power
business in conference call tomorrow and revise our earnings post that.
Sharp fall in Ebitda margins
Having posted flat or expanding margins for 11 successive quarters, Crompton’s
margins fell by 323bps for the consolidated entity and 177bps for the standalone
business in 4QFY11. This meant that the company’s consolidated Ebitda declined by
7% YoY, and came 11% lower than expectations. Material costs rose by 231bps while
overhead costs increased by 201bps. Industrial business faced the sharpest margin
decline by 10.64ppt, from 25.6% in 4QFY10 to 14.9% to 4QFY11.
Lower tax rates and higher other income help post in-line profits
Other income increased by 42% YoY (289% QoQ) to Rs468m. Moreover, effective tax
rate for the standalone entity stood at 16.7% (cf. our expectation of 28.5%), helping
the company post pre-exceptional profits in-line with our expectations. Crompton
recorded an exceptional loss of Rs332m in 4QFY11 in relation to claim by a customer
for supply of products by one of Crompton’s subsidiary prior to its acquisition.
Domestic power disappoints, strong growth in overseas business
Revenues for domestic power business fell by 1% YoY, while industrial and consumer
businesses continued to grow strongly (revenue growth of c.20% YoY for both).
International revenues also expanded sharply by 26% YoY, to Rs11.4bn. Consequently,
consolidated revenues stood at Rs29bn, 8% higher than expectations.
Lengthening working capital cycle
Crompton’s working capital for the standalone entity has gone up from Rs715m (1.4%
of revenues) at the end of FY10 to Rs5.4bn (9% of revenues) now. Inventories and
debtors have increased by 25-30% (to 25 inventory days and 93 debtor days) while
loans and advances have more than doubled, from Rs1.5bn to Rs3.1bn.
We will relook at our numbers post the conference call
We will look for clarity on decline in profit margins, lower tax rate, exceptional loss in
subsidiary, lengthening working capital cycle and outlook on domestic power business
in analyst call tomorrow. We will revise our earnings post the call, and there could be a
downgrade if material cost pressures persist. Crompton has named Laurent Demortier
as the new Managing Director. He has 11 years experience with Alstom, of which 8
years are within its T&D business. Mr Trehan will continue to remain on the Board.
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