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Research
Crompton Greaves - 4QFY12 Results Update - Motilal Oswal
Posted On : 2012-06-04 10:53:43( TIMEZONE : IST )
4QFY12 performance below expectations: CRG reported disappointing performance for 4QFY12. Consolidated revenue grew 5.8% YoY to INR31b (below our estimate of INR32b). EBITDA margin declined 590bp YoY to 6.9% (below our estimate of 9.4%). Net profit declined 65% YoY to INR1b (lower than our estimate of INR1.9b). International business performance was poor, impacted by revenue deferments (down 5.9% YoY in EUR terms; down 11-13% adjusting for Emotron acquisition) and margin pressures. Standalone Power (EBIT margin: 9.6%) and Industrial segments (EBIT margin: 13.2%) reported the lowest EBIT margins since FY06, indicating continued pricing pressure. Industrial segment's sales declined 2.2%, given the capex slowdown.
- Robust order intake driven by order award from Power Grid: Order intake grew 12% YoY in 4QFY12 and 15% in FY12 (Power: up 17%; Industry: up 4%), driven by strong order inflow from Power Grid. Order book stands at INR83b, up from INR71b as at the end of FY11 and INR81b as at the end of 3QFY12.
- Management guidance: For FY13, the management has guided 12-14% growth in consolidated revenue, EBITDA margin at 8-9% and 15% growth in order intake. Growth in Industrial business is expected to be supported by aggressive launch of drives in India by 2Q/3QFY13 and traction in railway projects. The Consumer segment growth would be supported by product portfolio expansion, given plans to source from China.
- Three-year strategy to enhance profitability: Over the next three years, the management expects to improve EBITDA margin by 450bp (from 7.1% in FY12), driven by improved product offerings/new geographies (+150bp), raw material sourcing rationalization (+150bp), rationalization of manufacturing footprint (+100bp) and improvement in manufacturing processes (+100bp).
- Cutting estimates by 15/6% for FY13/14: We have cut our EPS estimates by 15% for FY13 and by 6% for FY14 to account for lower profitability in both domestic and international businesses. The stock trades at a 38% discount to its long-term PE average. CRG is a strong company however, it is going through a tough phase, which is likely to impact reported performance in the medium term. We maintain Neutral.
