Bad times for Crompton Greaves (CG) continue : IndiaNivesh Securities

Bad times for Crompton Greaves (CG) continue, as the company continued
disappointing across most of the areas.
Standalone business
 CG reported a top-line of Rs 17.4 bn, which is up 7.5% on a year-over-year
basis. Increased traction from fans & appliances contributed to 20.6%
year-over-year growth in Consumer products (~34.8% of Q3FY13 revenues)
top-line. Power systems (~38.4% of Q3FY13 revenues) witnessed 4.5%
year-over-year decline. Decline in segment revenues was mainly due to 20
days shut-down of Nashik factory. In management’s view this shut-down
resulted in a top-line loss of Rs 270 mn.
 EBITDA margins declined 320 bps on a year-over-year basis to 7.6% in Q3FY13.
Increased competition in the domestic power segment has led to project
executions at lower margins. Surge in year-over-year material (10.9% up to
Rs 13.1 bn) & other expenses (14.4% up to Rs 1.9 bn) led to EBITDA margin
compression.
 In line with EBITDA margin movement, PAT margins declined from 7.8% in
Q3FY12 to 6.1% in Q3FY13. PAT margin compression was restricted, as other
income increased by 92.2% to Rs 259.7 mn.
Consolidated business
 CG reported a consolidated top-line of Rs 29.7 bn against our expectations
of Rs 29.7 bn. The reported top-line numbers declined 1.9% on a year-over-year
basis. However, they were up 1.6% sequentially. Sharp slow-down in
International Power business led to 9.9% decline in Power Systems (61.2% of
Q3FY13 revenues) top-line.
 CG reported an EBITDA of Rs 20.1 mn against our expectations of Rs 1.3 bn.
From EBITDA margins perspective, EBITDA margins declined from 6.0% a
year-ago to 0.1% in Q3FY13. Such decline in year-over-year EBITDA margins is
mainly on account of 46.5% increase in other expenses (to Rs 4.7 bn). Other
expenses during the quarter included ~Rs 1.0 bn of restructuring expenses
(of this ~Rs 830 mn is for Q3FY13 and the remaining ~Rs 250 mn is for Q1FY13
and Q2FY13).
 The company reported a net loss of ~Rs 1.9 bn against our PAT expectations
of Rs 377 mn. The reported PAT margins were at negative 6.4% (vs. positive
2.5% a year ago). In Dec, 2012, CG completed restructuring exercise at their
Belgium plant. As part of restructuring initiative, 199 employees were laid
down and paid Rs 1.2 bn as retrenchment expenses (shown under exceptional
item). On adjusting for the same, the net loss margins of the company were
at 2.3%. Management claims that the restructuring process at their Mechelen
Plant, Belgium is completed & now they would end up saving annually Euro
~14-15 mn. Recent ZIV acquisition, mostly funded through debt, in our view
led to 89.3% increase in year-over-year interest expenses (to Rs 212.6 mn).
 International Industrials business (i.e. Emetron subsidiary) reported positive
operating performance, while forex loss dragged down the overall segment’s
EBIT margins from negative 8.4% a year-ago to negative 9.0% in Q3FY13.

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