Crompton Greaves - Multiple strategies to emerge as 'global corporation' - Motilal Oswal

Spain, Hungary operations to drive growth

- We visited i) Tapioszele (Hungary) where Crompton Greaves (CG) manufactures power transformers, rotating machines and GIS substations and ii) Bilbao (Spain) where the recently-acquired ZIV and the global headquarters of CG's newlyformed fourth business unit, power automation, are located. We also interacted with the senior management team, including Mr Laurent Demortier (MD and CEO), business heads and operating management across divisions.

- We noticed an increased pace of urgency to emerge as a 'global corporation' from India. Several steps to enhance product portfolios, geography reach, correcting cost structure etc are being accelerated. Though the reported financials continue to disappoint, the operating management demonstrated a strong commitment to execute the long term plan.

- The transition phase led to several moving aspects, which are challenging to monitor and stock's reaction to any slippages has been significant. In our view, CG's performance would largely be driven by an improvement in overseas business, though standalone performance would protect downsides. We estimate overseas business EPS loss of INR4.7/sh in FY13 (led by the restructuring costs in Belgium/Hungary) and breakeven in FY14 (as benefits of several initiatives show initial results). Standalone business' performance is expected to be steady, with EPS at INR8.2/sh in FY13 (up 4% YoY) and INR9.2/sh in FY14 (up 12% YoY). We maintain Buy, with a target price of INR131.

Source : Equity Bulls

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