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Cromp. Greaves: ‘Power’ packs the punch - Views on News from Equitymaster
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Cromp. Greaves: ‘Power’ packs the punch
Jan 23, 2009

Performance summary
  • Consolidated sales grow by 26% YoY during 3QFY09, 31% YoY during 9mFY09. Growth aided strong performance of the ‘power systems’ business.
  • Operating (EBIDTA) margins contract by 0.4% YoY during the quarter, largely on account of higher staff costs and stock related adjustments (both as percentage of sales).
  • Net profits rise by 49% YoY during the quarter, 39% YoY during the nine-month period.
  • Recommends interim dividend of 80 paise per share (dividend yield of 0.6%).


Financial performance snapshot (Consolidated)
(Rs m) 3QFY08 3QFY09 Change 9mFY08 9mFY09 Change
Sales 17,135 21,498 25.5% 48,117 62,772 30.5%
Expenditure 15,268 19,242 26.0% 43,375 56,104 29.3%
Operating profit (EBDITA) 1,867 2,256 20.9% 4,742 6,669 40.6%
Operating profit margin (%) 10.9% 10.5%   9.9% 10.6%  
Other income 78 88 12.7% 531 373 -29.7%
Interest 189 224 18.9% 506 528 4.4%
Depreciation 396 252 -36.6% 958 917 -4.3%
Profit before tax 1,360 1,869 37.4% 3,809 5,597 46.9%
Tax 520 620 19.2% 1,156 1,912 65.4%
Minority interest 21 16 -21.7% 34 24 -28.7%
Share of profit/(loss) of associate 7 (1) -109.7% 18 (2) -111.1%
Profit after tax/(loss) 827 1,232 49.0% 2,638 3,660 38.7%
Net profit margin (%) 4.8% 5.7%   5.5% 5.8%  
No. of shares       366.6 366.6  
Diluted earnings per share (Rs)*         13.9  
P/E ratio (x)*         9.3  
* On a trailing 12-months basis

What has driven performance in 3QFY09?
  • The 26% YoY growth in Crompton Greaves’ (CG) revenue during 3QFY09 was aided by robust performance from its ‘power systems’ segment. This segment, which formed 72% of the company’s consolidated sales, recorded a growth of 28% YoY. As for the consumer products business, sales grew by 14% YoY during the quarter. The industrial systems business grew by only about 6% YoY.

    Segment-wise performance (Consolidated)
      3QFY08 3QFY09 Change 9mFY08 9mFY09 Change
    Power Systems            
    Revenue (Rs m) 12,480 16,001 28.2% 33,909 44,959 32.6%
    % share 69.2% 72.0%   66.6% 68.8%  
    PBIT margin 7.7% 9.4%   7.6% 8.9%  
    Consumer Products            
    Revenue (Rs m) 2,603 2,971 14.2% 8,146 9,880 21.3%
    % share 14.4% 13.4%   16.0% 15.1%  
    PBIT margin 9.8% 9.1%   10.3% 10.3%  
    Industrial Systems            
    Revenue (Rs m) 2,746 2,907 5.8% 8,015 9,579 19.5%
    % share 15.2% 13.1%   15.8% 14.7%  
    PBIT margin 17.7% 14.4%   17.5% 15.8%  
    Others            
    Revenue (Rs m) 217 350 61.2% 820 943 15.0%
    % share 1.2% 1.6%   1.6% 1.4%  
    PBIT margin -7.1% 21.3%   -1.5% 16.0%  
    Total            
    Revenue (Rs m)* 18,046 22,228 23.2% 50,890 65,362 28.4%
    PBIT margin 9.4% 10.2%   9.5% 10.2%  
    * Excluding inter-segment adjustments

  • CG’s operating margins contracted by 0.4% YoY during 3QFY09. This was largely on the back of an increase in its staff costs (as percentage of sales) as also due to stock related adjustments. Raw material costs, on the other hand, saw a decline from 54.6% of sales in 3QFY08 to 54.4% in 3QFY09.

  • CG recorded a 49% YoY growth in consolidated net profits during 3QFY09. This was duly aided by significantly lower depreciation costs. A drop in the effective tax rate from 38.2% to 33.2% also helped boost the bottomline.

  • The numbers for 3QFY09 include the results of Soclete Nouvelle de Maintenance Transformateurs (Sonamatara) and MSE Group acquired recently. Thus the numbers for the quarter are not strictly comparable to the figures of the previous period.

What to expect?
At the current price of Rs 135, the stock is trading at a multiple of 5.5 times our estimated consolidated FY11 earnings for the company. The management has indicated that the power systems business segment will be one of the biggest growth drivers going forward. The current unexecuted order book contains a big chunk of orders (87%) from this segment which will be sufficient for execution for the next one year. The consolidated order book of the company stands at Rs 65,920 m at the end of the quarter.

CG has seen a part of drop in demand for transformers due to the housing downturn in the developed countries. This was however compensated by the strong demand for renewable energy transformers which has become a mandate especially in the US and Europe. The management has also indicated that it expects the company to maintain the margins at least for the next 3 to 6 months. It sees the company growing by a minimum of 15% till FY10. The nine-month performance has been in line with our full-year estimates, and as such we maintain our positive view on the company.

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