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Fine print
Crompton’s capex more than tripled in FY11 to Rs4.4bn, partly on account
of Rs2.7bn investment in an aircraft. This, coupled with higher working
capital, resulted in RoE falling from 41% in FY10 to 34% in FY11.
Crompton continues to focus on R&D, productivity improvements and cost
efficiencies in order to improve its competitive positioning, and would
consider more acquisitions to become an end-to-end solutions provider.
Maintain BUY; pick up in domestic orders will be the key positive catalyst.
Return ratios slid down due to high capex, working capital
Crompton’s (standalone entity) capex increased 3.5x YoY to Rs4.4bn in FY11,
partly on account of Rs2.7bn investment in aircrafts, which now represent
25% of the standalone gross block (10% of consol gross block). Working
capital cycle also lengthened from 4% of revenues in FY10 to 12% in FY11 for
the standalone entity (8% to 13% for consolidated entity), which resulted in
RoE falling from 41% to 34%– though still amongst the best in the industry.
Continued focus on R&D, productivity improvements
Crompton has set a budget of investing up to 4% of its revenues on R&D by
2015 – versus ~1.5% currently. It also intends to further improve its
productivity through global sourcing (target to procure 57% of materials
from low cost countries in FY12 cf. 46% in FY11), standardisation and better
designs. Recent acquisitions have helped bridge the technology gap vis-à-vis
MNC players in the automation domain, and management has hinted that it
could explore more acquisitions to become an end-to-end solutions provider.
Overseas power strong, margin pressure in industrial business
Domestic power business witnessed a sharp fall in realisations (17% growth
in MVA terms translates into a 2% revenue growth); exports declined by
13%YoY. However, international power business posted a robust 21% revenue
growth in Euro terms (9% in Rupee terms). Consumer and industrial also
businesses grew strongly (20-25% revenue growth), though Ebitda margins
in industrial business fell by 510bps, to 18.4%.
Maintain BUY; pick up in orders will act as a catalyst
The next two quarters could be challenging, with power inflows remaining
weak and margin pressure intensifying. However, we expect domestic power
business to return to double digit revenue growth from FY13 onwards, while
industrial and consumer businesses should continue to grow strongly (we
forecast 16-21% revenue Cagr). Pick up in transformer/ sub-station awards
by PowerGrid will be the positive catalyst. Maintain BUY, though the purchase
of the aircraft could remain an overhang on the stock in the near term.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Fine print
Crompton’s capex more than tripled in FY11 to Rs4.4bn, partly on account
of Rs2.7bn investment in an aircraft. This, coupled with higher working
capital, resulted in RoE falling from 41% in FY10 to 34% in FY11.
Crompton continues to focus on R&D, productivity improvements and cost
efficiencies in order to improve its competitive positioning, and would
consider more acquisitions to become an end-to-end solutions provider.
Maintain BUY; pick up in domestic orders will be the key positive catalyst.
Return ratios slid down due to high capex, working capital
Crompton’s (standalone entity) capex increased 3.5x YoY to Rs4.4bn in FY11,
partly on account of Rs2.7bn investment in aircrafts, which now represent
25% of the standalone gross block (10% of consol gross block). Working
capital cycle also lengthened from 4% of revenues in FY10 to 12% in FY11 for
the standalone entity (8% to 13% for consolidated entity), which resulted in
RoE falling from 41% to 34%– though still amongst the best in the industry.
Continued focus on R&D, productivity improvements
Crompton has set a budget of investing up to 4% of its revenues on R&D by
2015 – versus ~1.5% currently. It also intends to further improve its
productivity through global sourcing (target to procure 57% of materials
from low cost countries in FY12 cf. 46% in FY11), standardisation and better
designs. Recent acquisitions have helped bridge the technology gap vis-à-vis
MNC players in the automation domain, and management has hinted that it
could explore more acquisitions to become an end-to-end solutions provider.
Overseas power strong, margin pressure in industrial business
Domestic power business witnessed a sharp fall in realisations (17% growth
in MVA terms translates into a 2% revenue growth); exports declined by
13%YoY. However, international power business posted a robust 21% revenue
growth in Euro terms (9% in Rupee terms). Consumer and industrial also
businesses grew strongly (20-25% revenue growth), though Ebitda margins
in industrial business fell by 510bps, to 18.4%.
Maintain BUY; pick up in orders will act as a catalyst
The next two quarters could be challenging, with power inflows remaining
weak and margin pressure intensifying. However, we expect domestic power
business to return to double digit revenue growth from FY13 onwards, while
industrial and consumer businesses should continue to grow strongly (we
forecast 16-21% revenue Cagr). Pick up in transformer/ sub-station awards
by PowerGrid will be the positive catalyst. Maintain BUY, though the purchase
of the aircraft could remain an overhang on the stock in the near term.
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