Crompton Greaves (SELL): Margin deterioration across all segments - AMBIT

Crompton Greaves recorded revenues of Rs33.8bn (up 10% YoY) in 4QFY13, which were marginally ahead of our estimates of Rs33bn, but the EBITDA at Rs779mn (down 63% YoY) was 39% lower than our estimates. Whilst the management sounded bullish on FY14 margins, the company faces major headwinds such as: (1) rising competition in the domestic consumer business (especially from Bajaj and Havells), (2) the shrinking Indian Electrical market (note that the Indian transformer market shrunk by 26% in FY13) given the dismal financial condition of state electricity boards, and (3) no signs of economic improvement in Europe. Whilst FY14 will be a better year, the stock price already factors in this optimism. At CMP, the stock is trading at FY15 P/B of 1.4x despite our EPS estimates of Rs7.8 in FY14 and Rs11.4 in FY15 (vs Rs12.9 in FY10 and Rs14.4 in FY11) and an RoE of 17% in FY15. Note that we have already assumed EBITDA margin of 7.1% in FY14 and 8.6% in FY15. We reiterate our SELL stance.

Source : Equity Bulls

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