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Spark Capital: Crompton Greaves 4QFY14 Results Review - Lackluster performance continues; Maintain Sell




Spark Capital Advisors(India) Private Limited


04 Jun 2014





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Lackluster performance continues; Maintain Sell Crompton Greaves (CRG) reported revenue of Rs. 37.6bn (consolidated), a growth of 11.2% yoy with an EBITDA margin of 5.0% and a PAT of Rs. 638mn. Growth in the standalone business was lackluster with both power and consumer segments registering flat yoy growth and industrial segment de-growing by 7.5% yoy. Margins in the standalone power and consumer segments improved >200bps yoy over a low base, but contracted by 478bps yoy in the industrial segment due to fall in prices of HT motors. International business witnessed 30.3% yoy growth (benefited from currency depreciation), break-even at an EBITDA level. Segmental margins in the international power segment turned positive on account of benefits from government grants for R&D (~Rs. 270mn) and forex gains (~Rs. 200mn). The management expects operations in the Canadian and US facilities to stabilize/improve over the next two quarters. We believe risk of margin pressure persists in the medium term and expect international power segment EBIT margin to recover gradually going forward. Order book stood at Rs. 92.9bn (2% yoy growth) with subdued order inflow of Rs. 26.2bn (17% yoy de-growth) We expect margin improvement in the international power segment to be a long and gradual process and expect pressure on margins to continue in the medium term. Considering the headwinds in the power segment, we retain our ‘Sell’ rating on the stock. Highlights of the quarter’s performance and outlook Growth in domestic market remain lackluster – Growth across all three segments at a standalone level continues to remain lackluster due to weak execution/demand environment. While fans and lighting segments grew by >15% yoy during the quarter, muted pump sales dragged the segment’s growth. Similarly, growth in power (2.3% yoy) and industrial (7.5% yoy de-growth) segments were impacted owing to a weak order book position. International margins to witness only gradual recovery – Margin in the international business continued to remain sluggish (0.2% EBITDA margin) and is likely to witness only gradual recovery, given on-going stabilization of operations in Canadian and US facilities and risk of liquidated damages for order executed in the Hungary facility (possible delivery delays). We expect international margins to be 2.1% and 3.6% in FY15E and FY16E respectively Order inflow pace stays subdued – Order book stood at Rs. 92.9bn (2% yoy growth) with subdued order inflow of Rs. 26.2bn (17% yoy de-growth). Order inflow in both power and industrial segments de-grew during the quarter. We expect order inflow to recover by a moderate 8% CAGR over the next two years

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