Crompton Greaves- Robust performance continues: target Rs361: Macquarie Research,

Please Share:: India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��


Crompton Greaves India
Robust performance continues
Event
 CRG declared its 3Q11 results today. Earnings were inline with our estimates
but higher than the Street’s estimates. Revenues at Rs24bn and earnings at
Rs2.3bn were up 7% and 16% YoY, respectively.  We will come back with
more details post the conference call on Jan 31st. We have an Outperform
rating on the stock with a target price of Rs361.

Impact
 Robust revenue growth in non-power domestic business continues:
Revenue growth in domestic business was strong at 14% led primarily by
30% and 20% growth in the consumer and industrial segments, respectively.
Power business remains a spot of bother as revenue remains flat on a YoY
basis. Overseas entities had flat revenues (-2% YoY) resulting in 7% revenue
growth at the consolidated level. In 9MFY11, revenue growth has been 1%,
28% and 17% respectively, in power, consumer and industrial segments in a
consolidated basis.
 No risks to FY11 revenue estimates as consumer growth makes up for
the slight shortfall in the power revenues.
 Power revenues would pick-up in FY12: We expect orders from
Powergrid (PWGR IN, Rs97, Neutral, TP: Rs100, Covered by Jeff Evans)
in 1Q12 to aid power systems. Domestic order book has strongly grown in
FY11 which would support the revenue growth.
 Stable margins despite raw material prices, continues to beat Street’s
estimates: CRG delivered earnings growth of 16% YoY with stable margins
of 14.2%. The margin decline in the consumer and industrial segments was
offset by margin expansion in the power business. We believe that the decline
in the industrial segment is largely due to a lag in passing on the hike in raw
material prices and hence, should get corrected.
 Street’s EPS upgrades to continue: Consensus estimates for FY11 at Rs14
implies a decline of 3% in 4Q11. With revenue growth sustaining in the double
digits and stable margins, we expect at least a 5% upgrade in FY11E EPS
numbers. We expect at least similar upgrades for FY12.
Earnings and target price revision
 No change.
Price catalyst
 12-month price target: Rs361.00 based on a PER methodology.
 Catalyst: award of projects by Powergrid.
Action and recommendation
 Correction overdone, buy the best play on Indian power T&D capex
story: The stock has corrected by 20% in the last one month on concerns of
delays in Powergrid orders. We believe that the stock provides an extremely
attractive entry point for investors keen to play the Indian power T&D capex
story. At Rs263, the stock is available at 15x FY12E EPS with earnings CAGR
of 20% over the next 2-3 years coupled with 30%+ RoEs.