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Crompton Greaves - 1QFY2013 Result Update - Angel Broking
Posted On : 2012-07-25 19:52:06( TIMEZONE : IST )
Crompton Greaves (CG) reported a weak performance for 1QFY2013, which was below our estimates and street expectations. Though, CG has posted above expected revenue numbers at Rs.2,811cr up 15.3% yoy, company's international subsidiaries continued to be a drag on profitability with PAT coming in at Rs.86cr, up 8.1% yoy and below our expectations of Rs.95cr. We also note that, CG has changed its accounting policy, wherein the company would now be performing an annual impairment testing for goodwill instead of amortization of its goodwill, thus overstating its PAT for this quarter compared to last year. Consolidated order intake for 1QFY2013 was Rs.2,717cr, a yoy jump of 60%, led by international power system segment. OB at the end of 1QFY2013 stood at Rs.9,172cr. We expect FY2013E margins to remain subdued, however expect FY2014E margins to improve as International subsidiaries margin recovers. We recommend Accumulate on the stock.
International business remains a drag: CG's international business, primarily driven by Power systems, has been the main drag on CG's profitability over the past few quarters. International operations which contributed 41% of total consolidated revenues contributed only 5% to consolidated EBITDA during the quarter and posted a net profit loss of Rs.35.3cr for the quarter. Employee cost of CG's international subsidiaries remains excessive at ~28% of total revenues compared to only ~6% for its standalone business, which should improve as restructuring of its international operations take place.
Looking beyond current weakness: Management has maintained its guidance for sales growth of 12-14%, supported by healthy order backlog along with EBITDAM in the range of 8-9%, which we find optimistic for FY2013E and built in EBITDA margin of 7% and 8.5% for FY2013E and FY2014E, respectively. We look beyond the current quarter's weakness and maintain our positive stance as we expect margin recovery over the next few quarters. We maintain Accumulate on the stock and reduce our TP to Rs.128.
