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EARNINGS REVIEW
Crompton Greaves (CROM.BO)
Neutral Equity Research
Below expectations on lower margin across segments, keep Neutral
What surprised us
Crompton reported 2QFY12 sales of Rs27.1 bn, implying 13% yoy growth –
in line with our and Bloomberg consensus estimates. EBITDA margin at
8.4% was 120bp below our estimate of 9.6% and 550 bp below 2QFY11
margins. Order inflows for the quarter declined by 12% yoy but increased
by 33% from the previous quarter. The company retained its FY12
guidance of 10%-12% revenue growth and 8%-10% EBIT margin.
What to do with the stock
With 7% yoy revenue decline in the domestic power systems segment;
muted growth of 4% yoy in the consumer segment and difficult macro
conditions faced by its foreign subsidiaries, we expect that margin
pressure on various business segments could continue for a prolonged
period – we expect company to achieve EBIT margins of 7% this year,
improving to 8.6% next year. In addition, the increase of working capital
for the company over 2 quarters from close to 27 days to 48 days also
continues to weigh on their financial strength and borrowing needs.
We lower our EPS for FY12E/13E/14E by 8%-10% on the back of lower
margin expectations and consequently our 12m SOTP based TP to Rs 160
(from Rs 174 earlier). The stock is down 53% ytd and now trading at 12-m
fwd P/B of 2.2 which is at 52% discount to its 5-yr median multiple;
justified in our view given slowing growth and returns. Maintain Neutral.
Key risk - Upside: Increased order activity from PGCIL, pick-up in industrial
activity; Downside: Continued pricing pressure and cost inflation, delay in
capex activity from PGCIL.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
EARNINGS REVIEW
Crompton Greaves (CROM.BO)
Neutral Equity Research
Below expectations on lower margin across segments, keep Neutral
What surprised us
Crompton reported 2QFY12 sales of Rs27.1 bn, implying 13% yoy growth –
in line with our and Bloomberg consensus estimates. EBITDA margin at
8.4% was 120bp below our estimate of 9.6% and 550 bp below 2QFY11
margins. Order inflows for the quarter declined by 12% yoy but increased
by 33% from the previous quarter. The company retained its FY12
guidance of 10%-12% revenue growth and 8%-10% EBIT margin.
What to do with the stock
With 7% yoy revenue decline in the domestic power systems segment;
muted growth of 4% yoy in the consumer segment and difficult macro
conditions faced by its foreign subsidiaries, we expect that margin
pressure on various business segments could continue for a prolonged
period – we expect company to achieve EBIT margins of 7% this year,
improving to 8.6% next year. In addition, the increase of working capital
for the company over 2 quarters from close to 27 days to 48 days also
continues to weigh on their financial strength and borrowing needs.
We lower our EPS for FY12E/13E/14E by 8%-10% on the back of lower
margin expectations and consequently our 12m SOTP based TP to Rs 160
(from Rs 174 earlier). The stock is down 53% ytd and now trading at 12-m
fwd P/B of 2.2 which is at 52% discount to its 5-yr median multiple;
justified in our view given slowing growth and returns. Maintain Neutral.
Key risk - Upside: Increased order activity from PGCIL, pick-up in industrial
activity; Downside: Continued pricing pressure and cost inflation, delay in
capex activity from PGCIL.
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