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Q3FY15 Result Highlights (Consolidated): Crompton Greaves reported top-line of Rs33,332.1 mn, down 0.6% y/y, down 2.8% q/q. De-Growth in y/y revenues is mainly due to 3.1% decrease in Indian Power Systems business and 1.9% decrease in Indian Industrial Systems business. CG reported EBITDA of Rs 1,517.6 mn (-9.2% y/y; -9.9% q/q). Reported EBITDA margins were at 4.6% (vs. 4.9% in Q2FY14 and 5% year ago). Decline in y/y EBITDA margins is mainly due to lower sales coupled with increase in raw material expenses (to Rs 22,918 mn). CG reported PAT of Rs 2,742.9 mn, up 342.3% y/y and 293.8% q/q. This surprised PAT numbers in Q3FY15 is mainly on account of exceptional gain of Rs 2,675 from sale of Kanjurmarg land at Thane, Mumbai. Post adjusting exceptional gain, Adj PAT stood at Rs 67.1 mn (-89.2% y/y;-90.4% q/q). At CMP of Rs 169, CG is trading at FY15E and FY16E, P/E multiple of 20.86x and 19.12x, respectively. Considering the de-merger process, we switch our valuation methodology from P/E basis to Sum-of-the-parts based valuation methodology. Our SoTP-based price target would be at Rs 210 (Rs 100/share for Consumer Products business on assigning 14x EV/EBITDA to our FY 16E estimates) and Rs110/share (21x FY16E EPS of Rs 5.2) for non-Consumer Products business. We assign “BUY” rating with target price of Rs 210. Q3FY15 Consolidated Results Update: Crompton Greaves reported top-line of Rs33,332.1mn (-0.6% y/y;-2.8% q/q). DeGrowth in y/y revenues is mainly due to 3.1% decrease in Indian Power Systems business and 1.9% decrease in Indian Industrial Systems business. Management in concall sounded positive about uptick in execution across, International Power & Industrial Systems businesses. CG reported EBITDA of Rs 1,517.6 mn (-9.2% y/y;-9.9% q/q). Reported EBITDA margins were at 4.6% (vs. 4.9% in Q2FY14 and 5% year ago). Decline in y/y EBITDA margins is mainly due to lower sales coupled with 2.4% increase in raw material expenses (to Rs 22,918 mn). However, Management continue to echo that their Hungarian, Belgium & Canadian subsidiaries are close to attaining EBITDA level break-even. We expect this hangover will continue for next 2 to 3 quarters going forward due to ongoing slowdown in overseas market. If we look at segment-wise unadjusted EBIT margins, Industrials segment witnessed 310 bps q/q decline in margins (to 6.1%, indicating under-utilization of domestic plant capacities).Power Systems business reported 70 bps q/q decline in margins to 1.5%. Power system capacity utilization stood at ~70% during the quarter as per the management in the concall. Total operating expense stood at Rs 31814.5 mn down 0.1% y/y. This reflects (1) 4.5% y/y decline in staff expense due to layoff of some employees from international sites (2) 7.8% decline in other expenditure due to lower expenditure in procuring raw material. EBITDA margins decline by 40 bps y/y and stood at. CG reported Adj. PAT of Rs 67.1 mn (-89.2% y/y;-90.4% q/q)
Q3FY15 Standalone Results Update CG reported domestic sales of Rs18,582 mn (-0.5% y/y;-3.4% q/q). Domestic sales on y/y basis, reflects (1) 11.1% increase in Consumer Products business (~39% of Q3FY15domestic revenues) and (2) 11.3% decrease in power business (~35% of Q3FY15 domestic revenues). 11% y/y increase in Consumer business top-line is on a/c of (1) 13% increase in Pump revenues & (2) 8% increase in Consumer lighting revenues. Decrease in power business was mainly on account of lower exports of transformers to Middle East and South-East markets Industrials segment in Q3FY15 reported 1.9% y/y revenue de-growth. Management attributed this decline to client side delays in delivery to Indian Railways. EBITDA margins decrease from 9.1% year ago to 8.7% in Q3FY15. This decrease in y/y EBITDA margins is mainly due to 4.7% increase in other expenses (to Rs 1,967.8 mn). Also, higher wages led to 2.9% y/y increase in staff costs (to Rs 1,252 mn)
Key take aways from the Concall Management for first time in recent quarters, sounded positive on growth and margin expansion prospects of the company. Following are the key take aways 1. All International subsidiaries are close to EBITDA level break-even. With execution of high margin projects from International business, we can expect gradual improvement in International business EBITDA from Q1FY16 onwards. Management continue to maintain that worst on margin front (for International front) is behind. 2. Canadian plant in Q3FY15 reported closer to EBITDA level break-even. Decision on Phase II of the restructuring is yet to be taken. 3. Management highlighted that new order wins in Q3FY15 from International markets have been at 500 bps higher margins. Order wins from Automation and Large Motors space should add to margin expansion (in International business) from Q4FY15 onwards, respectively. On a whole, with ramp-up in execution, shift in mix towards high margin International order wins should help the company report over 3-4% EBITDA margins, going forward as compared to current margin range of 0.2-0.5%. 4. Management expects domestic Railways business to see increased traction from Q2FY16 onwards. Management also expects domestic Industrial markets to start seeing sales recovery from Q4FY15 onwards. Currently domestic Industrial plants are running at ~70% capacity utilization. Pick-up in sales momentum from here-on could lead to Operating leverage and margin expansion scenario. 5. Management sounded confident that de-merger, better mix &efficient raw material procurement strategy should help Consumer Products business report better EBIT margins. Up-tick in volumes should further help Consumer Products business report margins up of current 12% levels.
Valuation At CMP of Rs 169, CG is trading at FY15E and FY16E, P/E multiple of 20.86x and 19.12x, respectively. Considering the de-merger process, we switch our valuation methodology from P/E basis to Sum-of-the-parts based valuation methodology. Our SoTP-based price target would be at Rs 210 (Rs 100/share for Consumer Products business on assigning 14x EV/EBITDA to our FY 16E estimates) and Rs110/share (21x FY 16E EPS of Rs 5.2) for non-Consumer Products business. We assign “BUY” rating with target price of Rs 210.
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http://www.indianivesh.in/Admin/Upload/635588150323860000_Crompton%20Greaves_Q3FY15%20Result%20Update.pdf
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