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February 1, 2012
Crompton Greaves
Performance Highlights
(` cr) Revenue EBITDA EBITDA margin (%) Adj. PAT 2QFY12 3,028 182.7 6.0 77.2 2QFY11 2,397 340.2 14.2 232.8 % chg (yoy) 26.3 (46.3) (816) (66.8) 1QFY12 % chg (qoq) 2,706 226.0 8.4 116.7 11.9 (19.2) (232.0) (33.8)
ACCUMULATE
CMP Target Price
Investment Period
Stock Info Sector Market Cap (` cr) Beta 52 Week High / Low Avg. Daily Volume Face Value (`) BSE Sensex Nifty Reuters Code Bloomberg Code Capital Goods 9,234 0.7 297/107 2,487,060 2.0 17,301 5,236 CROM.BO CRG@IN
`144 `152
12 months
Crompton Greaves (CG) reported a weak performance for 3QFY2012, which was significantly below our estimates and street expectations. Although CG has posted decent numbers on the top-line front, the companys margin has dragged its earnings. We believe CG is still facing headwinds on the business front and the outlook remains bleak for near to medium term. We revise our FY2012 and FY2013 estimates to factor in slower than anticipated margin recovery and thereby downgrade the stock to Accumulate from Buy. Weakness continues: For 3QFY2012, CGs top line grew by 26.3% yoy to `3,028cr (`2,397cr), which was 14.3% higher than our estimate of `2,649cr. EBITDA margin witnessed a steep contraction of ~820bp yoy to 6.0%, significantly below our/street estimates, primarily driven by high raw-material costs. Led by margin dip, the reported PAT plunged by 66.8% yoy to `77.2cr (`232.8cr), 42.0% below our (below street) expectations of `133.6cr. Outlook and valuation: Given the latent potential in the company (strong global T&D player with diversified product offerings), our build in conservative assumptions (9.6% EBITDAM for FY2013 much below the historical average of 12.0-13.0%) and current undemanding valuations (stock at 30% discount to its five year trading PE multiple), we maintain our positive stance on the company. The pessimism surrounding the companys growth and profitability has clearly been factored in the stock price, given the PE multiple derating and underperformance of the stock. Thus, we believe from a long-term perspective, investors can start accumulating the stock. We have assigned a multiple of 14.0 to arrive at a target price of `152, implying an upside of 5.6% from current levels. Key Financials (Consolidated)
Y/E March (` cr) Operating Income % chg Adj. PAT % chg EBITDA (%) EPS (`) P/E (x) P/BV (x) RoE (%) RoCE (%) EV/Sales (x) EV/EBITDA (x)
Source: Company, Angel Research
Shareholding Pattern (%) Promoters MF / Banks / Indian Fls FII / NRIs / OCBs Indian Public / Others 41.7 30.7 18.5 9.1
3m (1.0) 3.7
FY2010 9,141 4.6 825 47.3 14.0 12.9 11.2 3.7 44.4 43.7 1.0 6.9
FY2011 10,005 9.5 927 12.4 13.4 14.4 10.0 2.8 33.8 34.3 0.9 6.7
FY2012E 11,341 13.4 423 (54.3) 7.4 6.6 21.8 2.6 12.5 13.7 0.9 11.8
FY2013E 12,936 14.1 696 64.5 9.6 10.9 13.3 2.3 18.4 19.5 0.8 7.9
Shailesh Kanani
022-39357800 Ext:6829 shailesh.kanani@angelbroking.com
Hemang Thaker
022-39357800 Ext:6817 Hemang.thaker@angelbroking.com
3,028 0 3,028 406.3 1,723 70.3 392.9 13.0 322.7 10.7 2,845 182.7 6.0 11.2 62.7 15.5 124 4.1 49 39.2 77.2 2.5 0 77.2 1.2
2,397 0 2,397 42.3 1,447 62.1 300.5 12.5 266.7 11.1 2,057 340.2 14.2 3.9 46.7 12.0 302 12.6 70 23.3 233 9.7 0 232.8 3.6
26.3 26.3 19.1 8.2 30.8 21.0 38.3 (46.3) (8.2) 191.7 34.3 28.5 (58.8) (30.8) (66.8)
2,706 0 2,706 (184.7) 2,005 67.3 357.4 13.2 302.1 11.2 2,480 2,260 8.4 10.2 72.6 21.5 165 6.1 46 28.1 116.7 4.3 0
11.9 11.9 (14.0) 9.9 6.8 14.8 (91.9) 9.9 (13.7) (28.1) (24.5) 5.1 (33.8)
8,171 0 8,171 (50.4) 5,628 68.3 1,072.4 13.1 930.6 16.5 7,581 590.5 7.2 32.4 196.1 52.1 414.1 5.1 142.5 34.4 273 3.3 -
7,097 0 7,097 (110.4) 4,482 61.6 909.2 12.8 845.5 18.9 6,126 970.7 13.7 13.7 134.0 53.1 876.1 12.3 241.7 27.6 637 9.0 637.2 9.9
15.1 15.1 25.6 17.9 10.1 23.7 (39.2) 136.3 46.4 (1.9) (52.7) (41.0) (57.1)
(66.8) (66.8)
117 1.8
(33.8) (33.8)
273.3 4.3
(57.1) (57.1)
February 1, 2012
3QFY12 754.2 503.3 388.6 1.9 1,648 81.1 59.3 56.7 0.2 197.2 45.8 30.5 23.6 0.1 10.7 11.8 14.6 10.4 12.0
3QFY11 % chg (yoy) 580.7 475.1 349.7 3.0 1,409 114.9 66.6 63.7 0.6 245.8 41.2 33.7 24.8 0.2 19.8 14.0 18.2 20.3 17.5 29.9 5.9 11.1 (35.9) 17.0 (29.5) (11.0) (11.0) (67.2) (19.8)
2QFY12 % chg (qoq) 598.8 480.1 376.6 3.0 1,459 67.2 54.3 59.1 0.3 180.8 26.6 21.3 16.7 0.1 11.2 11.3 15.7 9.6 12.4 26.0 4.8 3.2 (36.1) (26.9) 20.7 9.2 (4.0) (31.0) (91.2)
9MHFY12 1,922 1,527 1,127 8 4,583 219.9 188.9 173.3 0.8 583.0 41.9 33.3 24.6 0.2 11.4 12.4 15.4 10.8 12.7
9MFY11 1,735 1,470 1,005 14 4,225 312.3 214.0 198.4 2.2 726.8 41.1 34.8 23.8 0.3 18.0 14.6 19.7 15.5 17.2
% chg (yoy) 10.8 3.9 12.1 (46.1) 8.5 (29.6) (11.7) (12.6) (62.3) (19.8)
February 1, 2012
3QFY12 2,069 503.3 475.9 4.5 3,053 51.8 59.3 49.4 0.8 161.2 67.8 16.5 15.6 0.1 2.5 11.8 10.4 16.6 5.3
3QFY12 1,545 475.1 380.9 5.7 2,407 200.8 66.6 69.4 (14.4) 322.3 64.2 19.7 15.8 0.2 13.0 14.0 18.2 (253.2) 13.4
% chg (yoy) 33.9 5.9 24.9 (20.7) 26.8 (74.2) (11.0) (28.7) (105.2) (50.0)
2QFY12 % chg (qoq) 1,761 480 466 6 2,713 93.4 54.3 55.8 0.7 204.1 64.9 17.7 17.2 0.2 5.3 11.3 12.0 11.2 7.5 17.5 4.8 2.2 (22.3) 12.5 (44.6) 9.2 (11.4) 15.4 (21.0)
9MFY12 5,347 1,527 1,320 16 8,210 185.3 188.9 156.1 2.5 532.8 65.1 18.6 16.1 0.2 3.5 12.4 11.8 15.8 6.5
9MFY11 4,579 1,470 1,063 23 7,135 549.8 214.0 199.3 (11.8) 951.2 64.2 20.6 14.9 0.3 12.0 14.6 18.8 (51.1) 13.3
% chg (yoy) 2,069 503.3 475.9 4.5 3,053 51.8 59.3 49.4 0.8 161.2
witnessed
in
domestic
and
CG witnessed weakness in the power system segment in 3QFY2012, as was the case during the first half. On a consolidated basis, Power segment posted 33.9% yoy growth to `2,069cr (`1,545cr) while international power systems revenues grew by a strong 36.3% yoy (aided by the currency movement of 10-12%). The domestic power systems business posted strong growth of 30.0% yoy. On the EBIT margin front, the company is facing issues due to increased material cost and few large low margin orders completed during the quarter, which led to a dip in profitability. The segments EBIT margin declined by 1,050bp on a yoy basis and by 280bp on qoq basis. EBIT margin on international business continued to reel under pressure, as it posted losses on EBIT level with negative EBIT margins of 2.2%.
February 1, 2012
Consumer products (domestic business) Profitability marred by slowdown in economy and high interest rates
For the Consumer segment the revenue was flat for the quarter at `503.3cr (`475.1cr). Margin continues to decline as expected. EBIT margin for the quarter came in at 11.8% against 14.0% last time around, a yoy fall of 220bp and a sequential 50bp incline . Management indicated that company has gained market share in fan business from ~21.2% to ~22.6% and has retained its leadership position. Further, it also bagged a huge order of 3,00,000 fans from Tamil Nadu.
2,732
2,564
2,512
4,200
2,029
3,154
4,900 3,500
(` cr)
1,704
2,260
3QFY10
4QFY10
1QFY11
2QFY11
3QFY11
4QFY11
1QFY12
2QFY12
3QFY12
6,802
7,017
7,088
7,108
8000
February 1, 2012
February 1, 2012
Investment concerns
Business under stress: We believe CG's power and industrial segment are facing several headwinds on the international and domestic business fronts, as reflected in the pressure witnessed in its recent quarterly numbers, mainly due to increasing competitive pressures (taking a toll on profitability) and general slowdown faced by economies (impeding the revenue visibility). To put things in perspective, CG has a sizeable exposure in the currently troubled geographies of Europe (17% of FY2011 revenue) and North America (11.5% of FY2011 revenue). Likewise, CG's consumer segment, which had expanded admirably in the past is currently facing the brunt of inflationary pressures. Therefore, we believe CG's near-to-medium term performance would be under pressure. Outlook and valuation Given the latent potential in the company (strong global T&D player with diversified product offerings), our build in conservative assumptions (9.6% EBITDAM for FY2013 much below the historical average of 12.0-13.0%) and current undemanding valuations (stock at 30% discount to its five year trading PE multiple), we maintain our positive stance on the company. The pessimism surrounding the companys growth and profitability has clearly been factored in the stock price, given the PE multiple derating and underperformance of the stock. Thus, we believe from a long-term perspective, investors can start accumulating the stock. We have assigned a multiple of 14.0 to arrive at a target price of `152, implying an upside of 5.6% from current levels.
Change in estimates
We have revised our financial estimates based on the current results, overall sector outlook as well as managements guidance. We have marginally tweaked our topline estimates upwards to factor in good performance on the quarterly front and decent order inflow. On margin front we remain conservative and expect them to remain under pressure. We have also estimated higher working requirements on the back of high debtor levels on consolidated basis, though there has been improvement in 3QFY2012.
FY2013E Var. (%) 3.5 (14.1) (153) (18.5) (18.6) 19.1 Earlier estimates 12,406 1,500 12.1 980 12.2 9000 Revised estimates 12,936 1,238 9.6 696 10.9 10,706 Var. (%) 4.3 (17.5) (252) (29.0) (11.0) 19.0
February 1, 2012
6.6 10.9
240 160 80 0
Jan-07 May-07 Jan-08 May-08 Jan-09 May-09 Jan-10 May-10 Jan-11 May-11 Sep-07 Sep-08 Sep-09 Sep-10 Sep-11
24x
6x
12x
18x
(`) (Downside) (%) FY12E FY13E FY12E FY13E 427 168 152 54 (47.9) (29.3) 5.6 12.9 4.0 6.8 2.5 1.5 2.6 0.6 1.3 3.6 6.0 2.1 1.3 2.3 0.5 1.1 3.0 92.2 9.0 6.6 21.8 4.0 9.3 14.1 46.0 10.8 7.1 13.3 4.4 5.8 15.0
EPS CAGR FY12E FY13E FY12E FY13E 144.2 (2.4) (13.4) (13.3) (5.3) 9.4 0.9 11.4 39.5 14.2 13.7 21.7 17.0 32.8 20.2 26.5 10.6 19.5 18.2 19.0 26.0 7.6 30.6 25.0 12.5 15.8 21.5 28.0 13.9 21.1 23.4 20.1 12.7 27.2 21.9
Jan-12
February 1, 2012
February 1, 2012
February 1, 2012
10
FY2008 FY2009 615 132 (48) (74) (205) 420 (429) (29) 74 (384) (63) 69 99 (131) 3 241 244 867 127 111 (74) (305) 727 (363) (74) 74 (362) (124) 86 166 (210) 321 244 566
FY2010 1,189 155 (13) (110) (365) 857 (168) (386) 110 (444) 55.0 (217) 95 (52) (257) 103 566 669
FY2011 FY2012E 1,229 194 (446) (114) (310) 553 (845) (121) 114 (852) (31) 165 124 (195) (370) 669 298 625 263 (703) (88) (202) (104) (750) 275 88 (387) 497 165 332 (160) 298 138
FY2013E 967 296 (221) (73) (271) 698 (400) (100) 73 (427) (100) 165 (265) 6 138 144
February 1, 2012
11
Key Ratios
Y/E March Valuation Ratio (x) P/E (on FDEPS) P/CEPS P/BV Dividend yield (%) EV/Sales EV/EBITDA EV / Total Assets OB/Sales Per Share Data (`) EPS (Basic) EPS (fully diluted) Cash EPS DPS Book Value DuPont Analysis(%) EBIT margin Tax retention ratio (%) Asset turnover (x) RoIC (Pre-tax) RoIC (Post-tax) Cost of Debt (Post Tax) Leverage (x) Operating ROE Returns (%) RoCE (Pre-tax) Angel RoIC (Pre-tax) RoE Turnover ratios (x) Asset Turnover (Gross Block) (X) Inventory / Sales (days) Receivables (days) Payables (days) WC cycle (ex-cash) (days) Solvency ratios (x) Net debt to Equity Net debt to EBITDA Interest Coverage 0.6 0.8 7.9 0.0 0.0 10.8 (0.2) (0.4) 26.2 (0.1) (0.2) 32.7 0.2 0.9 13.1 0.1 0.4 19.7 3.1 53 84 124 26 3.4 45 79 111 19 3.4 43 84 122 16 3.1 42 86 118 23 2.7 49 91 113 39 2.7 54 91 115 47 35.2 43.9 46.9 41.9 55.5 44.8 43.7 66.9 44.4 34.3 47.6 33.8 13.7 15.8 12.5 19.5 21.1 18.4 9.1 66.6 4.7 42.6 28.4 6.0 0.7 44.3 10.0 64.9 5.6 55.9 36.3 6.7 0.2 43.6 12.3 69.3 5.7 70.0 48.5 4.9 (0.1) 43.6 11.5 74.8 4.4 50.7 37.9 5.4 (0.1) 33.8 5.1 67.7 3.2 16.6 11.2 4.2 0.1 11.8 7.3 72.0 3.0 22.1 15.9 3.7 0.2 17.9 11.1 11.1 14.5 1.6 35.1 15.3 15.3 18.6 2.0 49.5 12.9 12.9 15.3 2.2 38.8 14.4 14.4 17.5 2.2 50.8 6.6 6.6 10.7 2.2 54.8 10.9 10.9 15.5 2.2 63.1 13.0 9.9 4.1 1.1 1.4 13.2 5.3 0.8 9.4 7.7 2.9 1.4 1.1 9.3 4.0 0.8 11.2 9.4 3.7 1.5 1.0 6.9 3.1 0.7 10.0 8.2 2.8 1.5 0.9 6.7 2.3 0.7 21.8 13.5 2.6 1.5 0.9 11.8 2.2 0.7 13.3 9.3 2.3 1.5 0.8 7.9 1.9 0.5 FY2008 FY2009 FY2010 FY2011 FY2012E FY2013E
February 1, 2012
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E-mail: research@angelbroking.com
Website: www.angelbroking.com
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Disclosure of Interest Statement 1. Analyst ownership of the stock 2. Angel and its Group companies ownership of the stock 3. Angel and its Group companies' Directors ownership of the stock 4. Broking relationship with company covered
Crompton Greaves No No No No
Note: We have not considered any Exposure below ` 1 lakh for Angel, its Group companies and Directors.
Ratings (Returns):
February 1, 2012
13