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UBS Investment Research
Crompton Greaves Ltd
Q 1 FY12: Disappointing results
Q1 FY12 results: very weak numbers, below expectations
In Q1 FY12, Crompton Greaves’ (CG) operating income of Rs24.4bn was up 6%
YoY and EBITDA margins declined 545bps YoY, affected by higher raw material
costs. Reported PAT declined 58% YoY to Rs795m. PAT is significantly below
UBS and consensus estimates. The Q1 FY12 numbers are largely disappointing.
Q1 FY12: margins under severe pressure
The key highlight of the results is a sharp decline in margins. The margins declined
due to an increase in raw material costs, stiff competition in the domestic power
business, lower demand for consumer products, and deterioration in the Industrial
segment margins. However, staff costs and other costs have not deteriorated and
this is a positive, in our view.
Segmental results: margins decline across the board
In Q1 FY12, Industrial systems revenue grew 18% YoY, Power systems grew 4%
YoY, and consumer products segment revenue 2% YoY. The slowdown in the
consumer segment is a major cause of worry, in our view, and was not expected.
EBIT margins declined across segments with an 804bps YoY decline in the Power
systems segment; Industrial and Consumer businesses margins have also declined.
Valuation: maintain Sell and price target of Rs240
We derive our price target from a DCF-based methodology and explicitly forecast
long-term valuation drivers using UBS’s VCAM tool. Our price target assumes a
WACC of 13.1%
Crompton Greaves: disappointing results
In Q1 FY12;
CG’s operating income of Rs24.4bn was up 6% YoY
EBITDA margins declined 545bps YoY due to higher raw material cost
Reported PAT declined 58% YoY to Rs795m
PAT is significantly below UBS and consensus estimates.
Crompton Greaves Ltd
Crompton Greaves (CG) is one of the largest engineering companies in India.
Part of the Avantha Group, CG has three main businesses - power systems,
consumer products, and industrial systems - nearly two-thirds of sales come
from electrical products. CG has 22 manufacturing divisions spread across India,
and a large customer base that includes state electricity boards and large
companies in the private and public sectors. CG has a significant presence in
overseas markets through its acquisitions; Pauwels (2005), Ganz (2006),
Microsol (2007), Sonomatra (2008), MSE Power Systems (2008), and PTS
(2010).
Statement of Risk
We believe the key upside risks to our Sell rating on CG are: 1) a pick-up in
order activity at Power Grid and SEBs; 2) increased government focus; 3)
margin expansion; and 4) a better-than-expected performance in overseas
markets. We think the key downside risks for the company are: 1) competition;
2) delays in power generation projects; 3) rising raw material prices; 4) a
slower-than-expected recovery in government spending and industrial activity;
5) a slowdown in the international business; and 6) a decline in EBITDA margin.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
UBS Investment Research
Crompton Greaves Ltd
Q 1 FY12: Disappointing results
Q1 FY12 results: very weak numbers, below expectations
In Q1 FY12, Crompton Greaves’ (CG) operating income of Rs24.4bn was up 6%
YoY and EBITDA margins declined 545bps YoY, affected by higher raw material
costs. Reported PAT declined 58% YoY to Rs795m. PAT is significantly below
UBS and consensus estimates. The Q1 FY12 numbers are largely disappointing.
Q1 FY12: margins under severe pressure
The key highlight of the results is a sharp decline in margins. The margins declined
due to an increase in raw material costs, stiff competition in the domestic power
business, lower demand for consumer products, and deterioration in the Industrial
segment margins. However, staff costs and other costs have not deteriorated and
this is a positive, in our view.
Segmental results: margins decline across the board
In Q1 FY12, Industrial systems revenue grew 18% YoY, Power systems grew 4%
YoY, and consumer products segment revenue 2% YoY. The slowdown in the
consumer segment is a major cause of worry, in our view, and was not expected.
EBIT margins declined across segments with an 804bps YoY decline in the Power
systems segment; Industrial and Consumer businesses margins have also declined.
Valuation: maintain Sell and price target of Rs240
We derive our price target from a DCF-based methodology and explicitly forecast
long-term valuation drivers using UBS’s VCAM tool. Our price target assumes a
WACC of 13.1%
Crompton Greaves: disappointing results
In Q1 FY12;
CG’s operating income of Rs24.4bn was up 6% YoY
EBITDA margins declined 545bps YoY due to higher raw material cost
Reported PAT declined 58% YoY to Rs795m
PAT is significantly below UBS and consensus estimates.
Crompton Greaves Ltd
Crompton Greaves (CG) is one of the largest engineering companies in India.
Part of the Avantha Group, CG has three main businesses - power systems,
consumer products, and industrial systems - nearly two-thirds of sales come
from electrical products. CG has 22 manufacturing divisions spread across India,
and a large customer base that includes state electricity boards and large
companies in the private and public sectors. CG has a significant presence in
overseas markets through its acquisitions; Pauwels (2005), Ganz (2006),
Microsol (2007), Sonomatra (2008), MSE Power Systems (2008), and PTS
(2010).
Statement of Risk
We believe the key upside risks to our Sell rating on CG are: 1) a pick-up in
order activity at Power Grid and SEBs; 2) increased government focus; 3)
margin expansion; and 4) a better-than-expected performance in overseas
markets. We think the key downside risks for the company are: 1) competition;
2) delays in power generation projects; 3) rising raw material prices; 4) a
slower-than-expected recovery in government spending and industrial activity;
5) a slowdown in the international business; and 6) a decline in EBITDA margin.
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