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Crompton Greaves (CRG)
Industrials
Margin contraction across the board mars results. Crompton reported 4QFY11
revenue growth of 16% yoy led by strong overseas revenues (up 28.5% yoy) and
moderate standalone business (up 9% yoy). However, sharp margin contraction (down
320 bps yoy, primarily in overseas subsidiaries) led to a PBT decline of 8% yoy. Lower
effective tax rate helped support PAT-level results. Power segment continued to record
weakness while industrials and consumer continued to drive standalone growth.
Consolidated: Sharp margin contraction led by overseas subs; low effective tax rate supports results
Crompton reported 4QFY11 consolidated revenues of Rs29 bn, up 16% yoy broadly in line with
our estimate of Rs28.7 bn. However, EBITDA margin contracted significantly to 12.8% versus 16%
in the same quarter last year – below our estimate of 15%. Company reported a net PAT of Rs2.8
bn (in line with estimate) in 4QFY11, up 5% yoy. However, this was supported by lower effective
tax rate of only 20% in the quarter (most of it in the standalone entity).
Standalone: Modest growth as power remains weak; margin decline led by industrial and power
Crompton reported 4QFY11 revenues of Rs17.6 bn at the standalone level, up 9% yoy and about
3% below our estimate. EBITDA margin was down 170 bps yoy to 15% (below our estimate of
15.9%) in 4QFY11 led by higher raw material expenses as a percentage of sales.
Power loses both revenue traction as well as margins. Power segment revenues recorded a
decline in revenues of 1% and also contracted margins by 140 bps (to 18.1% from 19.5%).
Consumer and industrial grow, but Industrials lose margins. Consumer and industrial
segments continued to record strong growth, at about 19% yoy. However, industrial margins
contracted sharply to 16% from 23% in 4QFY10 (18.7% in FY2011 versus 22.1% in FY2010).
Subsidiaries: Strong growth on low base effect; but sharp margin contraction take wind out of sails
Crompton subsidiaries recorded a strong 28% yoy revenue growth (in Rupee terms) to Rs11.4 bn
likely led by low base effect of 4QFY10. However, sharp margin contraction (500 bps yoy to 9.5%)
on higher raw material and other expenses as a % of sales lead to a 15% yoy decline in net profit.
Retain estimates and target price of Rs310/share; would revisit estimates post conference call
Retain our estimates of Rs16.2 and Rs18.9 for FY2012E and FY2013E, respectively. We would
revisit our estimates post today’s conference call (scheduled at 9:30 am). Reiterate BUY (TP: Rs310)
on (1) diversified business profile, (2) resilient consumer-facing business, (3) strong cash flow
generation, and (4) recovery in overseas subsidiaries.
Key risks relate to aggressive competition in the domestic power T&D segment may pressure
revenue growth and margins and slower-than-expected pick-up in domestic demand.
Sharp margin contraction led by overseas subs; lower effective tax rate supports
results
Crompton reported consolidated revenues of Rs29.1 bn in 3QFY11 recording a yoy growth
of about 16%, broadly in line with our estimates. The consolidated margins recorded a
sharp decline of 320 bps on a yoy basis to 12.8% versus our estimate of 15% (down 140
bps on sequential basis as well). The sharp decline in margins led to a net PBT of Rs3.5 bn in
4QFY11, a decline of 8% yoy and about 18% below our estimate of Rs4.3 bn. Despite the
miss at the PBT level, Crompton met our estimates at the PAT level - reported Rs2.8 bn net
PAT (before extraordinary items) led by lower effective tax rate (primarily in the standalone
entity). Crompton reported an average tax rate of about 19.4% at the consolidated level in
4QFY11 versus our estimate of 33%. Crompton also reported an exceptional item of Rs381
mn in 4QFY11 on account of claims made by a customer for supply of products (prior to
acquisition of the company by Crompton).
For the full year ending March 31, 2011, Crompton reported consolidated revenues of
Rs100 bn, up 9.5% yoy. Margins declined by about 60 bps on a yoy basis to 13.4% in
FY2011E. Lower effective tax rate led to a net PAT to Rs8.8 bn, up 11.5% yoy.
Standalone: Modest revenue growth as power declines marginally; margin
decline led by industrial and power
Crompton reported 4QFY11 revenues of Rs17.6 bn at the standalone level, up 9.1% yoy
and about 3% lower than our estimate. EBITDA margin declined by about 170 bps yoy to
15% (about 100 bps lower than our estimates). Margin contraction was led by higher raw
material and employee expenses as a percentage of sales. Lower-than-expected effective tax
rate of 16.7% (versus estimate of 33%) in 4QFY11 led to a net PAT of Rs2.1 bn, about 7%
ahead of our estimates.
For the full year ending March 31, 2011, Crompton reported standalone revenues of Rs59.5
bn, up 12.6% yoy. Margins remained relatively flat on a yoy basis at 15.7% for FY2011. The
revenue growth and lower tax rates led to a net PAT of Rs6.9 bn, up 20% yoy.
Power loses both revenue traction as well as margins; consumer and industrial grow,
but Industrial loses margins
Standalone power segment continued to reflect weakness recorded a decline in revenues as
well as margins. Crompton reported a marginal yoy decline in power segment revenues to
Rs8.2 bn from Rs8.3 bn last year. The segment also recorded a 150 bps yoy decline in EBIT
margins - likely reflection of increased competition and pricing pressure in the segment.
The industrials and consumer segments continued on the strong growth trajectory as
witnessed in 9MFY11, recording about 20% yoy growth each. However, the industrials
segment EBIT margins contracted sharply to 16% from 23% last year (18.7% for the full
year versus 22.1% last year, i.e. FY2010.
Subsidiary: Strong growth on low base effect; but sharp margin contraction
takes the wind out of sails
Crompton subsidiaries recorded a strong 28.5% yoy revenue growth (in Rupee terms) to
Rs11.4 bn in 4QFY11 from Rs8.9 bn in 4QFY10. This growth is likely to have been aided by
low base effect - 4QFY10 had witnessed a 19% yoy decline in Rupee terms (decline of
16.5% yoy in Euro terms). However margins contracted sharply by about 500 bps yoy to
9.5% on higher raw material and other expenses as a percentage of sales. Other expenses
have risen very sharply on both yoy (up 107% in absolute terms) as well as sequential basis
(up 55%). Employee costs remained flat and have actually contributed to operating leverage
but lower gross margin and a sudden spike in other expenses have still resulted in lower
margins on a yoy comparison. Lower margins led to a net PAT of Rs670 mn, down 15% yoy
and about 21% below our estimates.
Flat currency yoy this quarter would help versus –ve carry in past three
The strong revenue growth in Euro terms is likely to have come through in Rupee terms as
well in this quarter versus a negative carry in the last three quarters. Note that average
4QFY11 currency level is same as average 4QFY10 levels (average EUR-INR of 62.5 in
4QFY11 versus 63.5 in 4QFY10).
Retain estimates and target price to Rs310/share; reiterate BUY
We have retained our consolidated earnings estimates of Rs16.2 and Rs18.9 for FY2012E
and FY2013E, 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 with a target price of Rs310 on Crompton based on (1)
diversified business profile across geographies and segments, (2) strong pick-up witnessed in
overseas subsidiaries in the past quarters, (3) relatively resilient consumer-facing businesses
of Crompton, (4) potential for strong near-term revenue growth and margins in
international subsidiaries on strong trend witnessed in 9M and low base effect of 4QFY10,
(5) strong cash flow generation characteristics, (6) potential upside from higher participation
in substation package tenders, and (7) 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 the top.
India Equity Research Reports, IPO and Stock News
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Crompton Greaves (CRG)
Industrials
Margin contraction across the board mars results. Crompton reported 4QFY11
revenue growth of 16% yoy led by strong overseas revenues (up 28.5% yoy) and
moderate standalone business (up 9% yoy). However, sharp margin contraction (down
320 bps yoy, primarily in overseas subsidiaries) led to a PBT decline of 8% yoy. Lower
effective tax rate helped support PAT-level results. Power segment continued to record
weakness while industrials and consumer continued to drive standalone growth.
Consolidated: Sharp margin contraction led by overseas subs; low effective tax rate supports results
Crompton reported 4QFY11 consolidated revenues of Rs29 bn, up 16% yoy broadly in line with
our estimate of Rs28.7 bn. However, EBITDA margin contracted significantly to 12.8% versus 16%
in the same quarter last year – below our estimate of 15%. Company reported a net PAT of Rs2.8
bn (in line with estimate) in 4QFY11, up 5% yoy. However, this was supported by lower effective
tax rate of only 20% in the quarter (most of it in the standalone entity).
Standalone: Modest growth as power remains weak; margin decline led by industrial and power
Crompton reported 4QFY11 revenues of Rs17.6 bn at the standalone level, up 9% yoy and about
3% below our estimate. EBITDA margin was down 170 bps yoy to 15% (below our estimate of
15.9%) in 4QFY11 led by higher raw material expenses as a percentage of sales.
Power loses both revenue traction as well as margins. Power segment revenues recorded a
decline in revenues of 1% and also contracted margins by 140 bps (to 18.1% from 19.5%).
Consumer and industrial grow, but Industrials lose margins. Consumer and industrial
segments continued to record strong growth, at about 19% yoy. However, industrial margins
contracted sharply to 16% from 23% in 4QFY10 (18.7% in FY2011 versus 22.1% in FY2010).
Subsidiaries: Strong growth on low base effect; but sharp margin contraction take wind out of sails
Crompton subsidiaries recorded a strong 28% yoy revenue growth (in Rupee terms) to Rs11.4 bn
likely led by low base effect of 4QFY10. However, sharp margin contraction (500 bps yoy to 9.5%)
on higher raw material and other expenses as a % of sales lead to a 15% yoy decline in net profit.
Retain estimates and target price of Rs310/share; would revisit estimates post conference call
Retain our estimates of Rs16.2 and Rs18.9 for FY2012E and FY2013E, respectively. We would
revisit our estimates post today’s conference call (scheduled at 9:30 am). Reiterate BUY (TP: Rs310)
on (1) diversified business profile, (2) resilient consumer-facing business, (3) strong cash flow
generation, and (4) recovery in overseas subsidiaries.
Key risks relate to aggressive competition in the domestic power T&D segment may pressure
revenue growth and margins and slower-than-expected pick-up in domestic demand.
Sharp margin contraction led by overseas subs; lower effective tax rate supports
results
Crompton reported consolidated revenues of Rs29.1 bn in 3QFY11 recording a yoy growth
of about 16%, broadly in line with our estimates. The consolidated margins recorded a
sharp decline of 320 bps on a yoy basis to 12.8% versus our estimate of 15% (down 140
bps on sequential basis as well). The sharp decline in margins led to a net PBT of Rs3.5 bn in
4QFY11, a decline of 8% yoy and about 18% below our estimate of Rs4.3 bn. Despite the
miss at the PBT level, Crompton met our estimates at the PAT level - reported Rs2.8 bn net
PAT (before extraordinary items) led by lower effective tax rate (primarily in the standalone
entity). Crompton reported an average tax rate of about 19.4% at the consolidated level in
4QFY11 versus our estimate of 33%. Crompton also reported an exceptional item of Rs381
mn in 4QFY11 on account of claims made by a customer for supply of products (prior to
acquisition of the company by Crompton).
For the full year ending March 31, 2011, Crompton reported consolidated revenues of
Rs100 bn, up 9.5% yoy. Margins declined by about 60 bps on a yoy basis to 13.4% in
FY2011E. Lower effective tax rate led to a net PAT to Rs8.8 bn, up 11.5% yoy.
Standalone: Modest revenue growth as power declines marginally; margin
decline led by industrial and power
Crompton reported 4QFY11 revenues of Rs17.6 bn at the standalone level, up 9.1% yoy
and about 3% lower than our estimate. EBITDA margin declined by about 170 bps yoy to
15% (about 100 bps lower than our estimates). Margin contraction was led by higher raw
material and employee expenses as a percentage of sales. Lower-than-expected effective tax
rate of 16.7% (versus estimate of 33%) in 4QFY11 led to a net PAT of Rs2.1 bn, about 7%
ahead of our estimates.
For the full year ending March 31, 2011, Crompton reported standalone revenues of Rs59.5
bn, up 12.6% yoy. Margins remained relatively flat on a yoy basis at 15.7% for FY2011. The
revenue growth and lower tax rates led to a net PAT of Rs6.9 bn, up 20% yoy.
Power loses both revenue traction as well as margins; consumer and industrial grow,
but Industrial loses margins
Standalone power segment continued to reflect weakness recorded a decline in revenues as
well as margins. Crompton reported a marginal yoy decline in power segment revenues to
Rs8.2 bn from Rs8.3 bn last year. The segment also recorded a 150 bps yoy decline in EBIT
margins - likely reflection of increased competition and pricing pressure in the segment.
The industrials and consumer segments continued on the strong growth trajectory as
witnessed in 9MFY11, recording about 20% yoy growth each. However, the industrials
segment EBIT margins contracted sharply to 16% from 23% last year (18.7% for the full
year versus 22.1% last year, i.e. FY2010.
Subsidiary: Strong growth on low base effect; but sharp margin contraction
takes the wind out of sails
Crompton subsidiaries recorded a strong 28.5% yoy revenue growth (in Rupee terms) to
Rs11.4 bn in 4QFY11 from Rs8.9 bn in 4QFY10. This growth is likely to have been aided by
low base effect - 4QFY10 had witnessed a 19% yoy decline in Rupee terms (decline of
16.5% yoy in Euro terms). However margins contracted sharply by about 500 bps yoy to
9.5% on higher raw material and other expenses as a percentage of sales. Other expenses
have risen very sharply on both yoy (up 107% in absolute terms) as well as sequential basis
(up 55%). Employee costs remained flat and have actually contributed to operating leverage
but lower gross margin and a sudden spike in other expenses have still resulted in lower
margins on a yoy comparison. Lower margins led to a net PAT of Rs670 mn, down 15% yoy
and about 21% below our estimates.
Flat currency yoy this quarter would help versus –ve carry in past three
The strong revenue growth in Euro terms is likely to have come through in Rupee terms as
well in this quarter versus a negative carry in the last three quarters. Note that average
4QFY11 currency level is same as average 4QFY10 levels (average EUR-INR of 62.5 in
4QFY11 versus 63.5 in 4QFY10).
Retain estimates and target price to Rs310/share; reiterate BUY
We have retained our consolidated earnings estimates of Rs16.2 and Rs18.9 for FY2012E
and FY2013E, 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 with a target price of Rs310 on Crompton based on (1)
diversified business profile across geographies and segments, (2) strong pick-up witnessed in
overseas subsidiaries in the past quarters, (3) relatively resilient consumer-facing businesses
of Crompton, (4) potential for strong near-term revenue growth and margins in
international subsidiaries on strong trend witnessed in 9M and low base effect of 4QFY10,
(5) strong cash flow generation characteristics, (6) potential upside from higher participation
in substation package tenders, and (7) 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 the top.
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