Crompton Greaves - 1QFY14 Results Update - Motilal Oswal

Mixed performance: Crompton Greaves (CRG) posted mixed performance for 1QFY14. Nevertheless, this came as a respite after eight consecutive quarters of disappointing operational performance. The key positive was standalone results, with 9.7% revenue growth and EPS of INR1.9. Overseas subsidiaries, however, continued to disappoint, just about achieving EBITDA breakeven. Against our estimate of a loss of INR248m, they posted a loss of INR666m at PAT level.

One-offs: One-offs that impacted performance were (1) fire at Kanjurmarg (Mumbai) factory, impacting revenues by INR700m (leading to 5% decline in standalone Power revenues), and (2) floods in Hungary, impacting revenues by EUR4m (leading to just breakeven v/s profits in 4QFY13).

Incremental orders at improved margins: Order intake grew 20% to INR14.4b in standalone business but declined 33% to INR10b in overseas business. The order books of all the key global power transformer factories (Belgium, Hungary, Canada, Bhopal) are full for FY14 and CRG has been selective in taking orders. Margins on incremental orders are higher than the average order book margins - up 100bp in India and up 10% in overseas business. Management expects ~100% capacity utilization in FY14.

Valuation and view: The key monitorables are losses in Canada, liquidated damages (important swing factor, as globally, power transformer factories have full order books for FY14), rework costs, etc. We are cutting our estimates. We now expect standalone EPS at INR6.9 for FY14 (3% downgrade) and INR7.5 for FY15 (16% downgrade). Maintain Buy, with a revised TP of INR110 (12x FY15E EPS for standalone entity; EV of 0.5x FY15E revenues for overseas subsidiaries).

Source : Equity Bulls

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