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We witnessed a significant improvement in quality of disclosures in the post
result analyst meet, a welcome move. The implicit communiqué was that CG
and Mr. Demortier’s performance should be measured against guidance
established by the latter, since he assumed office in June-11─ the presentation
carried QoQ growth numbers only. The guidance on FY12 growth (10-12%)
and margins (8-10%) reiterated during the analyst meet, appears realistic in
our view, given ongoing pricing pressures in the domestic market and weak
macro outlook in DM. Over the last 3months CG has underperformed the
Sensex by 23% and our well documented thesis on P/E de-rating owing to
decline in profitability has played out. As focus shifts to FY13, we roll
forward our DCF based PT to Sep-12 (from Mar-12 earlier). Our revised PT
of Rs135 equates to 13.5x 1-yr forward EPS and implies ~5% downside to
CMP. We upgrade CG to Neutral.
Mr. Demortier’s growth strategy: In order to improve margins
management targets to increase procurement from low cost destinations to
66% vs. 43% currently. The company intends to leverage India as a low cost
manufacturing hub to export products which meet European quality
standards. The thrust on renewable market is bearing results and is driving
growth overseas. Management wants to strengthen the CG brand and
product offering in the consumer segment. The company views M&A as a
means to increase CG’s addressable market.
On the flipside we do not see upside in the near-term either: Post weak
Sep-q results, we expect that consensus will cut estimates sharply (17%
ahead of our estimate). Order inflows declined 25% YoY in 1HFY12-
sustained weakness could signal downside to FY13 growth est. of ~13%. In
next fiscal we are factoring in 120bps YoY margin improvement to 10%,
owing to supply chain optimization measures & easing RM cost.
We recommend switch to PGCIL & Siemens within our T&D coverage.
Key downside risk to our PT of Rs135 is weak order inflows, upside stems
from improvement in macro outlook for developed markets.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
We witnessed a significant improvement in quality of disclosures in the post
result analyst meet, a welcome move. The implicit communiqué was that CG
and Mr. Demortier’s performance should be measured against guidance
established by the latter, since he assumed office in June-11─ the presentation
carried QoQ growth numbers only. The guidance on FY12 growth (10-12%)
and margins (8-10%) reiterated during the analyst meet, appears realistic in
our view, given ongoing pricing pressures in the domestic market and weak
macro outlook in DM. Over the last 3months CG has underperformed the
Sensex by 23% and our well documented thesis on P/E de-rating owing to
decline in profitability has played out. As focus shifts to FY13, we roll
forward our DCF based PT to Sep-12 (from Mar-12 earlier). Our revised PT
of Rs135 equates to 13.5x 1-yr forward EPS and implies ~5% downside to
CMP. We upgrade CG to Neutral.
Mr. Demortier’s growth strategy: In order to improve margins
management targets to increase procurement from low cost destinations to
66% vs. 43% currently. The company intends to leverage India as a low cost
manufacturing hub to export products which meet European quality
standards. The thrust on renewable market is bearing results and is driving
growth overseas. Management wants to strengthen the CG brand and
product offering in the consumer segment. The company views M&A as a
means to increase CG’s addressable market.
On the flipside we do not see upside in the near-term either: Post weak
Sep-q results, we expect that consensus will cut estimates sharply (17%
ahead of our estimate). Order inflows declined 25% YoY in 1HFY12-
sustained weakness could signal downside to FY13 growth est. of ~13%. In
next fiscal we are factoring in 120bps YoY margin improvement to 10%,
owing to supply chain optimization measures & easing RM cost.
We recommend switch to PGCIL & Siemens within our T&D coverage.
Key downside risk to our PT of Rs135 is weak order inflows, upside stems
from improvement in macro outlook for developed markets.
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