Neutral on Crompton Greaves - Motilal Oswal

• Mkt Cap USD3.8b
• CMP Rs283
• Neutral

- Standalone performance largely in line with expectations: Crompton Greaves (CG) reported standalone revenues of Rs13b (up 14.4% YoY), marginally lower than our estimate of Rs14b (up 18.3% YoY). Power Systems revenues were flat on a YoY basis, as exports were down 15% YoY at Rs2.2b. Net of exports, pure domestic growth in Power Systems was 17%. EBITDA margin expanded 76bp YoY to 15.6%, higher than our estimate of 15.2%. Adjusted net profit was up 24% YoY at Rs1.4b; higher other income of Rs148m (up 75% YoY) aided PAT growth.

- CG Global - revenues decline 6% YoY, EBITDA margin expands 198bp: CG Global (consisting of Pauwels, Ganz, Microsal, etc) reported revenues of Rs9.5b (down 6% YoY), EBITDA of Rs880m (up 20% YoY) and adjusted net profit of Rs487m (up 6% YoY). Net interest expense was Rs56m (up 11%). Other income of subsidiaries declined 77% YoY. In Euro terms, revenues were up 8% while PAT was up 22% YoY.

- Power Systems revenues lackluster; Consumer business EBIT at 95% of Power Systems EBIT: In the standalone entity, Power Systems (38% of revenues and 37% of EBIT) revenues were flat while EBIT margin was up 67bp YoY at 16.6%. Excluding exports, which declined 15% YoY, Power Systems revenues were up 17%. Industrial Systems (23% of revenues and 28% of EBIT) revenues jumped 23% YoY; EBIT margin expanded 62bp YoY to 20.6%. Consumer Products (40% of revenues and 35% of EBIT) revenues jumped 40% YoY while margin went up 104bp YoY to 15%. The Consumer business EBIT in absolute terms now constitutes almost 95% of Power Systems EBIT, indicating the significance of this division in the overall scheme of things for CG.

- Valuation and view: The stock trades at 20x FY11E and 16.3x FY12E earnings. We maintain Neutral with a price target of Rs264 (15x FY12E EPS).

Source : Equity Bulls

Keywords