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Crompton: Reiterate BUY with a target price of Rs210 (no change in estimates)
Key opportunities
We retain our earnings estimate of Rs10.6 and Rs13.5 for FY2012E and FY2013E,
respectively and our target price of Rs210/share (based on 16X FY2013E EPS).
We reiterate our BUY rating on Crompton as the stock is currently trading at reasonable
valuations post steep correction subsequent to the 1QFY12 results. Crompton is currently
trading at relatively attractive valuation of about 10X FY2013E earnings. Our positive stance
on the stock is based on (1) diversified business profile in terms of geographies as well as
business segments, (2) capability expansion in drives, generators, substation automation,
motors, consumer appliances, (3) strong balance sheet and cash flow generation
characteristics.
Stress-case analysis
The stock is trading cheaper than the implied valuation in our stress-case scenario. We arrive
at a stress-case EPS of Rs9.9 and Rs11.8 for FY2012E and FY2013E - implies a target price of
about Rs180/share (on 15X FY2013E EPS). The stock is currently trading at Rs137/share -
11.5X of FY2013E stress-case EPS.
The key changes in assumptions in our stress case scenario include:
Standalone power. Flat yoy standalone power segment growth in FY2013E versus a
growth of 15% in our base case and about 150 bps lower EBIT margin for FY2012E and
FY2013E (to 12.5% from 14%) in standalone power segment margins to about 14%
versus 18% reported in FY2011 (our present assumption of 16.5%) with 5% and 15%
growth FY2012E and FY2013E,
Industrial segment. Lower industrial segment revenue growth assumption of 7.5% and
5% for FY2012E and FY2013E (from 12.5% and 15%, respectively) as well as 100 bps
lower EBIT margin at 14% from base-case assumption of 15%.
Key risks
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, (2) slower-thanexpected
pick-up in international demand, (3) Euro area business (17% of business) and
Euro currency (translation), and (4) slower-than-expected growth and lower-than-expected
margins in the consumer and industrial business.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Crompton: Reiterate BUY with a target price of Rs210 (no change in estimates)
Key opportunities
We retain our earnings estimate of Rs10.6 and Rs13.5 for FY2012E and FY2013E,
respectively and our target price of Rs210/share (based on 16X FY2013E EPS).
We reiterate our BUY rating on Crompton as the stock is currently trading at reasonable
valuations post steep correction subsequent to the 1QFY12 results. Crompton is currently
trading at relatively attractive valuation of about 10X FY2013E earnings. Our positive stance
on the stock is based on (1) diversified business profile in terms of geographies as well as
business segments, (2) capability expansion in drives, generators, substation automation,
motors, consumer appliances, (3) strong balance sheet and cash flow generation
characteristics.
Stress-case analysis
The stock is trading cheaper than the implied valuation in our stress-case scenario. We arrive
at a stress-case EPS of Rs9.9 and Rs11.8 for FY2012E and FY2013E - implies a target price of
about Rs180/share (on 15X FY2013E EPS). The stock is currently trading at Rs137/share -
11.5X of FY2013E stress-case EPS.
The key changes in assumptions in our stress case scenario include:
Standalone power. Flat yoy standalone power segment growth in FY2013E versus a
growth of 15% in our base case and about 150 bps lower EBIT margin for FY2012E and
FY2013E (to 12.5% from 14%) in standalone power segment margins to about 14%
versus 18% reported in FY2011 (our present assumption of 16.5%) with 5% and 15%
growth FY2012E and FY2013E,
Industrial segment. Lower industrial segment revenue growth assumption of 7.5% and
5% for FY2012E and FY2013E (from 12.5% and 15%, respectively) as well as 100 bps
lower EBIT margin at 14% from base-case assumption of 15%.
Key risks
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, (2) slower-thanexpected
pick-up in international demand, (3) Euro area business (17% of business) and
Euro currency (translation), and (4) slower-than-expected growth and lower-than-expected
margins in the consumer and industrial business.
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