Crompton Greaves: Marching ahead :: RBS

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Crompton Greaves
Marching ahead
We reiterate our positive view on Crompton on an expected recovery in the power
segment in 2H11, while other segments are on track. The strong traction in the
overseas power business bodes well for the future, in our view. The stock
remains our preferred pick in the T&D space. Buy with a target price of Rs364.


-Results in line with our estimates; overseas power business shows recovery
Crompton reported 2QFY11 numbers in line with our estimates. Consolidated revenue stood
at about Rs24bn (up 9.5% yoy) with net profit of Rs2.1bn (up 10.5% yoy). The margin was
flat at 13.9%. The company’s consumer products segment again showed the strongest
performance, recording 24% yoy revenue growth during the quarter, while its key segment,
power, had a fairly subdued performance, with 6.8% yoy revenue growth. Geographically,
both the domestic and international segments registered about 7% yoy growth. However,
adjusting for euro depreciation, the company’s international power segment grew at about
20% yoy during the quarter, showing good traction.
Our positive outlook on the company remains intact
Our positive outlook on Crompton remains intact: we expect the domestic power business to
see more traction as the year progresses. This, coupled with the better performance in the
international business, should stand the power segment in good stead. We anticipate that the
industrial segment will do well, as demand for motors picks up as industrial capex rises. The
current order book at Rs71bn provides reasonable visibility on future revenue and profit, in
our view. We expect Crompton to sustain margins in the 13-14% range, as the company’s
efforts to minimise costs through efficiency initiatives and global sourcing bear fruit.

Our preferred pick in the T&D space, maintain Buy rating
We maintain our estimates for the company and our Buy rating with a target price of Rs364.
Thanks to its product-focused power business, Crompton has been able to maintain its
margins in the domestic business despite increased competition in recent quarters. Its MNC
peers have suffered at the same time, due, we believe, to their exposure to projects
business. Crompton remains our preferred pick in the T&D space as the company’s mostly
products-based business gives it an advantage over peers. The stock is currently trading at
an FY11F P/E of 23.10x.