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Crompton Greaves
Short term pressures
4Q disappointed on margins with tepid order inflows and material cost pressure.
We expect this situation to continue for a couple of quarters before ordering
picks up in 2HFY12. Crompton continues to remain a preferred pick among the
T&D stocks in India. We maintain Buy with a revised target price of Rs305
4QFY11 disappoints on margin pressure due to commodity prices
The company had a disappointing 4QFY11, where PAT at Rs2.85bn was in line despite a
strong sales of Rs29bn(+16% yoy and 6% ahead of our estimates) as it saw its operating
margins dip 320bp yoy on account of higher commodity prices. The tough pricing
environment also contributed to the margin pressure. The industrial segment saw a sharp fall
in EBIT margins on account of some low priced orders from its acquisition of the traction
electronics business of Nelco (NELCO IN, Not rated) last year in 1QFY11. However these
legacy orders are likely to be over by end of 2Q FY12.
Ordering to remain tepid in 1HFY12; but likely to pick up in 2HFY12F
The company reported an order book of Rs71.6bn(+2% qoq) while order inflow was
Rs31.5bn owing to a slowdown in 4Q in the domestic business. We expect ordering to
remain tepid for the next couple of quarters in 1HFY12 but to pick up in 2HFY12 as
Powergrid ordering improves. Management mentioned in the conference call that it expects
order inflows to see double-digit growth in a year’s time. The competitive environment is
tough with pressure from Chinese and Korean vendors, though management feels their
pricing is not sustainable and should revert to normal soon.
Remains a relative pick in the space; maintain Buy
Crompton Greaves continues to be a relative pick in the T&D space. The company’s mostly
products-based business gives it an advantage over peers. Crompton has been able to
maintain margins in the domestic business despite increased competition in recent quarters.
The company already has its domestic manufacturing capabilities in place in the higher end
T&D systems, giving it a head start over competitors like ABB and Siemens. We trim our
FY12-13F earnings estimates 3-5% as we build in further margin pressures. This leads to a
trimming of our target price to Rs305 (from Rs330). We also introduce FY14 numbers. The
stock trades at a PE of 16x based onFY12F earnings
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Crompton Greaves
Short term pressures
4Q disappointed on margins with tepid order inflows and material cost pressure.
We expect this situation to continue for a couple of quarters before ordering
picks up in 2HFY12. Crompton continues to remain a preferred pick among the
T&D stocks in India. We maintain Buy with a revised target price of Rs305
4QFY11 disappoints on margin pressure due to commodity prices
The company had a disappointing 4QFY11, where PAT at Rs2.85bn was in line despite a
strong sales of Rs29bn(+16% yoy and 6% ahead of our estimates) as it saw its operating
margins dip 320bp yoy on account of higher commodity prices. The tough pricing
environment also contributed to the margin pressure. The industrial segment saw a sharp fall
in EBIT margins on account of some low priced orders from its acquisition of the traction
electronics business of Nelco (NELCO IN, Not rated) last year in 1QFY11. However these
legacy orders are likely to be over by end of 2Q FY12.
Ordering to remain tepid in 1HFY12; but likely to pick up in 2HFY12F
The company reported an order book of Rs71.6bn(+2% qoq) while order inflow was
Rs31.5bn owing to a slowdown in 4Q in the domestic business. We expect ordering to
remain tepid for the next couple of quarters in 1HFY12 but to pick up in 2HFY12 as
Powergrid ordering improves. Management mentioned in the conference call that it expects
order inflows to see double-digit growth in a year’s time. The competitive environment is
tough with pressure from Chinese and Korean vendors, though management feels their
pricing is not sustainable and should revert to normal soon.
Remains a relative pick in the space; maintain Buy
Crompton Greaves continues to be a relative pick in the T&D space. The company’s mostly
products-based business gives it an advantage over peers. Crompton has been able to
maintain margins in the domestic business despite increased competition in recent quarters.
The company already has its domestic manufacturing capabilities in place in the higher end
T&D systems, giving it a head start over competitors like ABB and Siemens. We trim our
FY12-13F earnings estimates 3-5% as we build in further margin pressures. This leads to a
trimming of our target price to Rs305 (from Rs330). We also introduce FY14 numbers. The
stock trades at a PE of 16x based onFY12F earnings
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