Crompton Greaves - 4QFY2012 Result Update - Angel Broking

Crompton Greaves (CG) reported a weak performance for 4QFY2012, which was below our estimates and street's expectations. Although the company posted decent numbers on the top-line front, the company's margin dragged its earnings. Consolidated order intake for 4QFY2012 stood at Rs.2,896cr, yoy jump of 12%, led by the power system segment. Order book at the end of 4QFY2012 stood at Rs.8,366cr. We revise our FY2013E and FY2014E estimates to factor in the decline in profitability; however, we believe margin pressure has already been factored in the stock price. Given the recent underperformance, the stock is currently trading at attractive valuation on our estimates. We continue to maintain our Buy view on the stock.

Weakness continues: For 4QFY2012, CG's top line grew by 5.8% yoy to Rs.3,077cr, which was slightly lower than our estimate. The company's EBITDA margin witnessed a steep contraction of ~590bp yoy to 6.9%, below our expectation, and was driven by high raw-material costs. Led by margin dip, reported PAT plunged by 60.1% yoy to Rs.100.3cr, 33.3% below our (below street) expectation of Rs.150.3cr.

Outlook and valuation: Management guided for sales growth of 12-14%, supported by healthy order backlog along with EBITDAM in the range of 8-9%. In-line with management's guidance, we build in conservative assumption (8.0% and 8.4% EBITDAM for FY2013 and FY2014, respectively, much below the historical average of 12.0-13.0%). Given the attractive valuations (stock at ~39% discount to its five-year trading PE multiple), we maintain our positive stance on the company. The pessimism surrounding the company's profitability has clearly been factored in the stock price, given the PE multiple de-rating and underperformance of the stock. We have assigned a multiple of 14.0 to arrive at a target price of Rs.133, implying an upside of 25.1% from current levels.

Source : Equity Bulls

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