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UBS Investment Research
Crompton Greaves Ltd
M anagement meeting takeaways
Event: met Mr. Laurent Demortier, CEO, and Mr. Madhav Acharya, CFO
This morning we met with company management. The highlights from our meeting
are: a) FY12 guidance of 10-12% sales growth and 8-10% margin is not
conservative according to the company; b) the company expects a lower tax rate
due to higher R&D expenditure this year, leading to an effective tax rate of ~20%
on a consolidated basis for FY12; c) according to the company, Crompton could
not book Rs2.5bn of revenue in Q1 FY12 due to delays in customers accepting
deliveries, otherwise EBITDA margin would have been ~10% (versus 7.5%
reported).
Impact: maintain our estimates, 16% upside to FY12E EPS in best case
Since we are already at the top end of guidance (12.5% sales growth and 10.1%
margin for FY12), we are not revising our numbers. We assume a tax rate of 30%
and if the actual rate is lower (~20% for FY12) and the company achieves sales
and margins in line with UBS estimates, there will be upside potential of 16% to
our FY12 EPS estimate.
Action: couple of good quarters for investor confidence to come back
We believe investors are concerned since the key segments of power systems and
consumer products (85% of revenue) disappointed in 1Q FY12. The power systems
business is struggling in both the overseas and domestic markets. Also, there is no
clarity in the near term on the revival of the consumer products business.
Valuation: maintain Sell rating and price target of Rs160
We derive our price target from DCF-based methodology and explicitly forecast
long-term valuation drivers using UBS’s VCAM tool. We assume a WACC of
13.2%.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
UBS Investment Research
Crompton Greaves Ltd
M anagement meeting takeaways
Event: met Mr. Laurent Demortier, CEO, and Mr. Madhav Acharya, CFO
This morning we met with company management. The highlights from our meeting
are: a) FY12 guidance of 10-12% sales growth and 8-10% margin is not
conservative according to the company; b) the company expects a lower tax rate
due to higher R&D expenditure this year, leading to an effective tax rate of ~20%
on a consolidated basis for FY12; c) according to the company, Crompton could
not book Rs2.5bn of revenue in Q1 FY12 due to delays in customers accepting
deliveries, otherwise EBITDA margin would have been ~10% (versus 7.5%
reported).
Impact: maintain our estimates, 16% upside to FY12E EPS in best case
Since we are already at the top end of guidance (12.5% sales growth and 10.1%
margin for FY12), we are not revising our numbers. We assume a tax rate of 30%
and if the actual rate is lower (~20% for FY12) and the company achieves sales
and margins in line with UBS estimates, there will be upside potential of 16% to
our FY12 EPS estimate.
Action: couple of good quarters for investor confidence to come back
We believe investors are concerned since the key segments of power systems and
consumer products (85% of revenue) disappointed in 1Q FY12. The power systems
business is struggling in both the overseas and domestic markets. Also, there is no
clarity in the near term on the revival of the consumer products business.
Valuation: maintain Sell rating and price target of Rs160
We derive our price target from DCF-based methodology and explicitly forecast
long-term valuation drivers using UBS’s VCAM tool. We assume a WACC of
13.2%.
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