Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Crompton Greaves (CG) reported disappointing Q4FY11 numbers, led by
strong pressure on EBIDTA margins across verticals. Power systems, which
had posted strong margins over the past six-seven quarters, reported
pressure in domestic operations as well as overseas subsidiaries.
�� Lower tax rate boosts earnings despite OPM decline
CG reported a consolidated PAT growth of 5.4% for Q4FY11 despite a strong
330bps Y-o-Y EBIDTA margin pressure, owing to lower tax rate which was due to
deductions on account of higher R&D spending. The company continued to report
margin pressure across all the three segments (Industrial systems, consumer
products and power systems), with power systems posting a strong 140bps Y-o-
Y decline in EBIT margins, for the first time after strong performance over the
past six-seven quarters.
�� Order inflows under pressure in domestic business; international strong
Consolidated order backlog jumped 12% Y-o-Y to INR 71.7 bn, while the
standalone order book was flattish at INR 34.9 bn. While international order
inflows were strong, domestic inflows were disappointing, recording a decline of
47% Y-o-Y to INR 17.1 bn. Consolidated inflow stood at INR 31.5 bn. Though
management expects order intake to remain sluggish over the next four-five
months, it anticipates T&D ordering from PGCIL to improve only from H2FY12.
�� Margins under pressure; revising down FY12E & FY13E EPS by 4 & 7%
Given the bleak outlook for T&D equipment in the near term, coupled with the
rising competitive intensity (incrementally more from players with domestic
capacities), we are revising down our consolidated EBIDTA margin estimates by
~90bps & 120 bps each for FY12E and FY13E. We also change our tax rate
assumption for CG from 29% earlier to 27% for FY12E & FY13E, building in
higher R&D spend. Accordingly, we also revise down our earnings by 4% to Rs
15.6 (FY12E) and 7% to Rs 17.7 (FY13E).
�� Outlook and valuations: Challenging times ahead; maintain ‘BUY’
While we believe CG will face some margin pressure owing to increased
competition in domestic T&D, we like the company’s diversified business model
with scope to further leverage the balance sheet for growth avenues like
substation automation, industrial drives, among others. The stock is currently
trading at 16x and 14x on our revised EPS for FY12E and FY13E respectively. We
maintain ‘BUY/ Sector Outperformer’ recommendation/rating on the stock.
�� Key takeaways from concall
�� Mr. Sudhir Trehan delivered his last analyst briefing as MD of CG, where he indicated
core focus areas for the company will be substation automation, industrial drives,
among others. Management will focus on balancing the power and industry revenue
portfolio, with an aim to make CG a global automation company going ahead.
�� Management believes product business share over the next three-five years will dip
as it focuses more on EPC business, where the company has more room for margin
improvement in overseas entities.
�� CG has clearly stated that incremental acquisitions in the substation automation,
industrial drives etc., will not be alone for technology, but for client access and
references as well.
�� The company plans to continue increased spending on R&D, thus maintaining lower
tax rate going forward.
�� The low margin orders of NELCO, which pulled down industrial system’s margins, are
expected to be completed in the next two quarters. Hence, margins are expected to
return to earlier robust levels.
�� CG plans to spend INR 4.5 bn during FY12E and FY13E each with domestic capex at
INR 3.5 bn while the balance in its international business.
�� Management believes aggressive bidding by Chinese / Korean players is not
sustainable in a rising commodity prices scenario. The company competes with same
players in other emerging markets like Malaysia, where CG has ~60% market share.
�� Management indicated that the domestic business during FY12 should record a
growth of 12-15%. Power systems, consumer durables and industrial systems are
expected to record 6-7%, 22-25%, and 18-20% growth, respectively. While
overseas business is expected to grow at 12-13%.
�� With the appointment of a new external MD, Mr. Laurent Demotier (joins on June 1,
2011) from Alstom, the company has indicated its intention to be a more serious
player in automation with global ambitions.
�� Company Description
Mumbai-based CRG, a part of the B. M. Thapar Group, is a pioneer in the management
and application of electrical energy. It is primarily engaged in designing, manufacturing,
and marketing high-technology electrical products and services related to power
generation, transmission, distribution, and executing turnkey projects. The company’s
business comprises three segments viz. power systems, industrial systems, and
consumer products. Nearly, two-thirds of its turnover comes from power segment, in
which, it enjoys leadership.
�� Investment Theme
CRGs diversified revenue base across power systems, industrial systems & consumer
product exposes it to three different markets, where consumer & industrial systems
provide strong cash flow support to the company. Increased T&D spend in India in the hi
end T&D space leaves open huge opportunities for the company, with PGCIL targeting to
spend INR 1000 bn in the 12th five year plan.
Also, CRG targets to enter substation business graduation from a pure product company
to complete T&D EPC entity, and has planned expansion (both organic and inorganic)
strategy for the same. The company is also targeting to acquire industrial automation
entities to bridge its product gaps in the existing industrial systems business through
leveraging its strong balance sheet.
�� Key Risks
Any delay in government spending in the power sector or any major policy change could
lead to a slowdown in investments from the utility companies, adversely affecting power
equipment companies like Crompton.
Higher raw material prices continue to remain a concern for Crompton and could hamper
growth in its operating margins, going forward.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Crompton Greaves (CG) reported disappointing Q4FY11 numbers, led by
strong pressure on EBIDTA margins across verticals. Power systems, which
had posted strong margins over the past six-seven quarters, reported
pressure in domestic operations as well as overseas subsidiaries.
�� Lower tax rate boosts earnings despite OPM decline
CG reported a consolidated PAT growth of 5.4% for Q4FY11 despite a strong
330bps Y-o-Y EBIDTA margin pressure, owing to lower tax rate which was due to
deductions on account of higher R&D spending. The company continued to report
margin pressure across all the three segments (Industrial systems, consumer
products and power systems), with power systems posting a strong 140bps Y-o-
Y decline in EBIT margins, for the first time after strong performance over the
past six-seven quarters.
�� Order inflows under pressure in domestic business; international strong
Consolidated order backlog jumped 12% Y-o-Y to INR 71.7 bn, while the
standalone order book was flattish at INR 34.9 bn. While international order
inflows were strong, domestic inflows were disappointing, recording a decline of
47% Y-o-Y to INR 17.1 bn. Consolidated inflow stood at INR 31.5 bn. Though
management expects order intake to remain sluggish over the next four-five
months, it anticipates T&D ordering from PGCIL to improve only from H2FY12.
�� Margins under pressure; revising down FY12E & FY13E EPS by 4 & 7%
Given the bleak outlook for T&D equipment in the near term, coupled with the
rising competitive intensity (incrementally more from players with domestic
capacities), we are revising down our consolidated EBIDTA margin estimates by
~90bps & 120 bps each for FY12E and FY13E. We also change our tax rate
assumption for CG from 29% earlier to 27% for FY12E & FY13E, building in
higher R&D spend. Accordingly, we also revise down our earnings by 4% to Rs
15.6 (FY12E) and 7% to Rs 17.7 (FY13E).
�� Outlook and valuations: Challenging times ahead; maintain ‘BUY’
While we believe CG will face some margin pressure owing to increased
competition in domestic T&D, we like the company’s diversified business model
with scope to further leverage the balance sheet for growth avenues like
substation automation, industrial drives, among others. The stock is currently
trading at 16x and 14x on our revised EPS for FY12E and FY13E respectively. We
maintain ‘BUY/ Sector Outperformer’ recommendation/rating on the stock.
�� Key takeaways from concall
�� Mr. Sudhir Trehan delivered his last analyst briefing as MD of CG, where he indicated
core focus areas for the company will be substation automation, industrial drives,
among others. Management will focus on balancing the power and industry revenue
portfolio, with an aim to make CG a global automation company going ahead.
�� Management believes product business share over the next three-five years will dip
as it focuses more on EPC business, where the company has more room for margin
improvement in overseas entities.
�� CG has clearly stated that incremental acquisitions in the substation automation,
industrial drives etc., will not be alone for technology, but for client access and
references as well.
�� The company plans to continue increased spending on R&D, thus maintaining lower
tax rate going forward.
�� The low margin orders of NELCO, which pulled down industrial system’s margins, are
expected to be completed in the next two quarters. Hence, margins are expected to
return to earlier robust levels.
�� CG plans to spend INR 4.5 bn during FY12E and FY13E each with domestic capex at
INR 3.5 bn while the balance in its international business.
�� Management believes aggressive bidding by Chinese / Korean players is not
sustainable in a rising commodity prices scenario. The company competes with same
players in other emerging markets like Malaysia, where CG has ~60% market share.
�� Management indicated that the domestic business during FY12 should record a
growth of 12-15%. Power systems, consumer durables and industrial systems are
expected to record 6-7%, 22-25%, and 18-20% growth, respectively. While
overseas business is expected to grow at 12-13%.
�� With the appointment of a new external MD, Mr. Laurent Demotier (joins on June 1,
2011) from Alstom, the company has indicated its intention to be a more serious
player in automation with global ambitions.
�� Company Description
Mumbai-based CRG, a part of the B. M. Thapar Group, is a pioneer in the management
and application of electrical energy. It is primarily engaged in designing, manufacturing,
and marketing high-technology electrical products and services related to power
generation, transmission, distribution, and executing turnkey projects. The company’s
business comprises three segments viz. power systems, industrial systems, and
consumer products. Nearly, two-thirds of its turnover comes from power segment, in
which, it enjoys leadership.
�� Investment Theme
CRGs diversified revenue base across power systems, industrial systems & consumer
product exposes it to three different markets, where consumer & industrial systems
provide strong cash flow support to the company. Increased T&D spend in India in the hi
end T&D space leaves open huge opportunities for the company, with PGCIL targeting to
spend INR 1000 bn in the 12th five year plan.
Also, CRG targets to enter substation business graduation from a pure product company
to complete T&D EPC entity, and has planned expansion (both organic and inorganic)
strategy for the same. The company is also targeting to acquire industrial automation
entities to bridge its product gaps in the existing industrial systems business through
leveraging its strong balance sheet.
�� Key Risks
Any delay in government spending in the power sector or any major policy change could
lead to a slowdown in investments from the utility companies, adversely affecting power
equipment companies like Crompton.
Higher raw material prices continue to remain a concern for Crompton and could hamper
growth in its operating margins, going forward.
No comments:
Post a Comment