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Crompton Greaves (CRG)
Industrials
Upgrade on strong overseas performance and guidance. We upgrade our rating
on the stock to ADD based on strong overseas performance and guidance on
(1) FY2012E revenue growth (7-8% overseas and 18% domestic), (2) capacity
expansion, (3) margin expansion in overseas subs, (4) FY2011E overseas revenue,
(5) pick-up in order inflows, particularly overseas and (6) big long-term BHAG-2015
targets (revenues of US$8 bn by 2015).
No upgrade to overseas growth guidance despite strong 2Q, favorable base; expect 15% growth
Overseas subsidiaries recorded strong 23% yoy growth in local currency terms. This was led by
pick-up in the wind transformer business and aided by the low base effect of 1HFY10. The low
base effect is likely to continue in 2HFY11E but the management has maintained full-year growth
guidance at 5% (Euro) citing a slowdown in the wind business (Vestas announced job cuts in
Europe on account of continued uncertainty). 15% growth for FY2011E (in Euro) possible based
on (1) strong 1H trend and (2) very favorable base effect (decline of 14% in Euro terms in 2HFY10).
Maintains FY2011E guidance; guides for even stronger growth in FY2012E
The management has maintained its FY2011E revenue growth guidance of 5% yoy (local currency
terms) in overseas subsidiaries and 15% yoy for the standalone entity. The management has
indicated an even stronger growth rate of 7%+ for the overseas subsidiaries (local currency terms)
and 18% for the standalone entity. The management expects a pick-up in growth in the power
segment in FY2012E (versus FY2011E), aided by a low base effect of 1HFY11.
Other highlights: Global inflows much higher than FY2010 levels; strong capex plans, BHAG-2015
Other highlights from the conference call include (1) order inflows for international subsidiaries at
Rs10 bn were 28% higher than FY2010 levels, (2) domestic power segment inflows at Rs7.5 bn
was broadly in line with FY2010 quarterly trend, (3) stronger capex plan of Rs6 bn each year over
FY11E-12E aiming to expand capacity envisaging demand pick-up in FY2012E (this has already
incurred Rs4.25 bn in FY2011E), and (4) a BHAG-2015 target of US$8 bn by 2015, with two
acquisitions (US$7bn, US$1 bn) and leadership in technology, productivity, quality and R&D.
We upgrade our rating to ADD (from REDUCE) with a revised target price of Rs340 (from Rs330)
based on (1) strong pick-up witnessed in overseas subsidiaries along with order inflows, (2)
potential for margin expansion in intl. subsidiaries, (3) likely recovery in industrial investments, and
(4) strong cash flow generation and positive call takeaways. We have revised our FY2012E
estimates to Rs17.3 (from Rs16.9) based on slightly higher estimates for the overseas subsidiaries.
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