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CRG's weak 1QFY12 performance and its aftermath have brought the stock from glamour to near
value zone. Even after adjusting segment EBITs down to reflect structural changes, the stock
looks inexpensive. We think the share price has the potential to double from here in the next
three years. Buy.
Is sales growth at risk?
We project CRG’s revenue to grow 9.2% / 9.6% / 11% in FY12F / FY13F / FY14F. Despite tough
macro conditions, CRG’s multi-segment, multi-country model is likely to support growth in the 9-
11% range, given that we project steep margin declines across segments (see table 1) in favour
of higher sales growth. Also, recent acquisitions of Emotron/QEI coupled with a JV with ZIV/EIC
Group should add incremental delta to numbers starting FY13E.
Sustainable EBITDA margin to drop by 250bp to 11.5%
For the period FY12-FY14F, we project: 1) domestic power EBIT margins to drop 450-550bp
(base FY11) to 12.5-13.5%; 2) consumer EBIT margins to fall 150-250bp to 12-13%, and; 3)
industrial EBIT margins to come down 300-350bp to 14%. The sharp drop reflects a combination
of a tough macro scenario, increase in industry capacity coinciding with more intense competition,
segment-specific issues and margins of safety to our estimates. Barring a blip in FY12F, we
project overseas power segment EBIT margins in the range of 7-8% for FY13/ FY14, in line with
FY09-11 levels. Based on our current projections, we think that the probability of any
risks/surprises on the downside is low.
We resume coverage with a Buy rating and a target price of Rs180
Our DCF-based target price for CRG is Rs180, which implies a target PE of 13.5x FY13F EPS.
We believe the multiple has contracted due to both temporary as well as structural issues. Hence,
reversion to the mean (average P/E multiple of 16.5x in the last five years) looks difficult, at least
in the medium term. Nonetheless, P/E should expand from the current 13x to 14-15x one-year
forward with smooth quarterly results, better business outlook, etc.
What could go wrong?
Risks to our positive outlook include: 1) continued aggressive bidding by Chinese and Korean
companies, 2) a protracted slowdown in domestic transmission equipment ordering by PGCIL,
SEBs, and 3) the debt crisis hurting demand in the US and Europe beyond FY12.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
CRG's weak 1QFY12 performance and its aftermath have brought the stock from glamour to near
value zone. Even after adjusting segment EBITs down to reflect structural changes, the stock
looks inexpensive. We think the share price has the potential to double from here in the next
three years. Buy.
Is sales growth at risk?
We project CRG’s revenue to grow 9.2% / 9.6% / 11% in FY12F / FY13F / FY14F. Despite tough
macro conditions, CRG’s multi-segment, multi-country model is likely to support growth in the 9-
11% range, given that we project steep margin declines across segments (see table 1) in favour
of higher sales growth. Also, recent acquisitions of Emotron/QEI coupled with a JV with ZIV/EIC
Group should add incremental delta to numbers starting FY13E.
Sustainable EBITDA margin to drop by 250bp to 11.5%
For the period FY12-FY14F, we project: 1) domestic power EBIT margins to drop 450-550bp
(base FY11) to 12.5-13.5%; 2) consumer EBIT margins to fall 150-250bp to 12-13%, and; 3)
industrial EBIT margins to come down 300-350bp to 14%. The sharp drop reflects a combination
of a tough macro scenario, increase in industry capacity coinciding with more intense competition,
segment-specific issues and margins of safety to our estimates. Barring a blip in FY12F, we
project overseas power segment EBIT margins in the range of 7-8% for FY13/ FY14, in line with
FY09-11 levels. Based on our current projections, we think that the probability of any
risks/surprises on the downside is low.
We resume coverage with a Buy rating and a target price of Rs180
Our DCF-based target price for CRG is Rs180, which implies a target PE of 13.5x FY13F EPS.
We believe the multiple has contracted due to both temporary as well as structural issues. Hence,
reversion to the mean (average P/E multiple of 16.5x in the last five years) looks difficult, at least
in the medium term. Nonetheless, P/E should expand from the current 13x to 14-15x one-year
forward with smooth quarterly results, better business outlook, etc.
What could go wrong?
Risks to our positive outlook include: 1) continued aggressive bidding by Chinese and Korean
companies, 2) a protracted slowdown in domestic transmission equipment ordering by PGCIL,
SEBs, and 3) the debt crisis hurting demand in the US and Europe beyond FY12.
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