Crompton Greaves - Diwali 2012 Pick - Angel Broking

Crompton Greaves (CG), part of the US$4bn Avantha Group, is one of the leading players in the power T&D equipment business in India. The company operates across three segments - power systems, consumer products and industrial systems.

In the last few quarters, Crompton Greaves' (CG) has been facing several headwinds on the international and domestic business fronts mainly due to a general slowdown faced by economies (impeding the revenue visibility) and increasing competitive pressures (taking a toll on profitability). However, we are of the opinion that CG's margins will bottom out in FY2013and we expect operating margin to improve going forward as the company restructures its Belgium unit. In its three-year vision, the management has targeted margin expansion of 450bp on the back of highvalue offerings, better sourcing and improved manufacturing footprint, which we think is a step in the right direction.

Given the attractive valuations (stock trading at 0.6x FY2014E EV/Sales compared to its trading range of 0.7x to 1.6x and median of 1.2x) , we maintain our positive stance on the company. We have assigned an EV/Sales multiple of 0.7x to arrive at a target price of Rs.145, implying an upside of 16% from the current levels.

Source : Equity Bulls

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