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Spark Capital: Crompton Greaves 1QFY14 Results Review - Closer to the bottom, Upgrade to Add




Spark Capital Advisors(India) Private Limited


08 Aug 2013





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Closer to the bottom, Upgrade to Add Crompton Greaves (CRG) reported revenue of Rs. 31.6bn (consolidated), a growth of 12.3% yoy with an EBITDA margin of 4.6% and a PAT of Rs. 608mn. Belgium and Hungary facilities turned EBIT positive during the quarter, but continued losses in the Canadian facility resulted in an EBIT level loss of 187mn in the international power segment. With both Belgium and Hungary facilities stabilizing and given change in management in Canada and steps taken to streamline operations, the company management expects margins in international businesses to improve going forward. Growth in the domestic power segment was muted (5% de-growth) due to delays in dispatch of equipment (worth Rs. 700mn) on the back of a fire accident in its Kanjurmarg factory. Order book stood at Rs. 97.7bn (7% yoy growth) with order inflow of Rs. 24bn remaining slightly muted owing to weakness in industrial demand. The management is aiming ton increase exports (Middle East and SE Asia) to compensate for the muted traction in industrial ordering. Consumer durable segment registered strong growth (20.6% yoy) boosted by strong fans sales and by increasing touch points through CRG’s dealer network. With prospects of margin improvement in international power segment being bright and growth in consumer durable segment remaining strong our outlook on the stock turns positive. We assign 10x multiple on FY15E earnings thereby arriving at a TP of Rs. 93. We upgrade the stock to ‘Add’. Highlights of the quarter’s performance and outlook International power segment stabilizing – After incurring restructuring related costs in the previous quarters, operations in both Belgium and Hungary plants have started stabilizing with both facilities turning EBIT positive during the quarter. With risks of further restructuring related losses in these facilities reducing, we expect margin in the international power segment to gradually improve going forward. We expect overall margin in the power segment to be 4.6% and 5.6% in FY14E and FY15E respectively. Industrial demand weakens – Growth in the industrial segment was healthy at 15.5% yoy, but order inflow (Rs. 5.7bn, 4% de-growth) was affected due to weak demand from key sectors (cement, power). The management expects promising export markets (Middle East and SE Asia) to boost industrial orders Yet another strong performance in consumer segment – Consumer segment continued its growth momentum with a growth of 20.6% yoy driven by strong fan sales (~40% yoy growth). Addition of new retail touch points (2000 nos. since Jan’13) and launch of new products are expected to sustain revenue growth of 20% yoy in the medium term

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