India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
CROMPTON GREAVES
PRICE: RS.244 RECOMMENDATION: BUY
TARGET PRICE: RS.280 FY12E P/E: 15.6X
q Crompton stock (along with the peer group) has been underperforming
the broader market. We believe that this has been mainly due to 1) concerns
regarding the delays in order outflows in the T&D space and 2)
slowdown in the real estate activity.
q We opine that with various power generation capacities coming on
stream in next few years, spending in T&D space is bound to increase
over the next few quarters.
q Overseas subsidiaries continued to observe meaningful revival in the demand
for distribution transformers in US and Europe.
q Company continues to generate meaningful operating cash flows despite
significant increase in the working capital in the domestic business.
q With increased capabilities in various domains acquired through JVs and
acquisitions we believe that the company is well integrated and well
poised to benefit from 1) spending in T&D space in India 2) up tick in
industrial capex 3) revival of overseas markets.
q We incorporate annual report details and maintain our 'BUY' rating on
the stock with a one year DCF based target price of Rs 280 (Rs 290 earlier).
Consolidated revenues grew by 9.5% in FY11 aided by meaningful
recovery in overseas business
n Crompton's overseas revenues grew by 21% YoY on constant currency basis
driven by 1) significant revival in distribution transformer business in US and Europe
coupled with meaningful traction in wind energy solution business 2) lower
base accounted by 16% YoY revenue decline in FY10 vis-à-vis FY09.
n However, unfavourable currency movement resulted in 9% YoY growth in overseas
revenues at Rs 40.6 bn in FY11. EBITDA margins for the segment stood at
11.2% at Rs 4.5 bn. Acquisitions of PTS resulted in 25% YoY increase in the
capital employed.
n The unexecuted overseas order book increased by 22% YoY and stood at Rs 36
bn in the end of FY11. Company has been observing significant demand pick up
for distribution transformers. Beside this, company has also received few large
orders including order for 1.5 MVA, 1.7 MVA and 6.2 MVA SLIM transformers
for wind segment in Europe.
n In wind segment, company has projects in hand of over 1056 MW in US and it
enjoys nearly 42% market share in offshore wind transformer application.
Financial outlook & Valuations
n Company reported 20% YoY decline in new order inflows in Q4FY11 at Rs 17
bn. For power systems segment, company has booked new orders worth of Rs 6
bn vis-à-vis Rs 12.8 bn in Q4FY10.
n In FY11, PGCIL has remained elusive in awarding new orders. PGCIL accounts for
a major part of the industry demand and thus its spending is critical for the overall
growth of the sector.
n Management expects overall demand scenario to start improving through Q2-
Q3FY12. We believe that with various power generation capacities coming on
stream in next few years, spending in T&D space is bound to increase in the next
few quarters.
n In our projected financials for FY12, we build 11% growth in revenues translating
into 5% growth in net profits.
n With increased capabilities in various domains acquired through JVs and acquisitions
we believe that the company is well integrated and well poised to benefit
from 1) spending in T&D space in India 2) up tick in industrial capex 3) revival of
overseas markets.
n At the current price stock is trading at 15.6 x P/E and 9.9x EV/EBITDA on FY12E
earnings We maintain our 'BUY' rating on the company's stock with a one year
DCF based target price of Rs 280 (Rs 290 earlier) on the stock.
No comments:
Post a Comment