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Cromp. Greaves: No setbacks here
May 23, 2008

Performance summary
  • Consolidated sales grow 21% YoY for the fiscal. Growth stands at 15% YoY for standalone numbers. Actual consolidated sales just 1% higher than our estimates.

  • EBIDTA margins for consolidated operations expand by 2.3% YoY during the fiscal. This is owing to lower raw material and staff costs (as percentage of sales).

  • Consolidated net profits up by 44% YoY during the fiscal, largely helped by expansion in operating margins. Standalone profits grow 63% YoY. Actual consolidated profit figure 13% higher than our estimates.

  • Recommends dividend of Rs 1.6 per share (dividend yield of 0.7%).


Snapshot of financial performance
  Standalone Consolidated
(Rs m) 4QFY07 4QFY08 Change FY07 FY08 Change FY07 FY08 Change
Sales 9,900 11,595 17.1% 33,676 38,758 15.1% 56,396 68,323 21.2%
Expenditure 8,757 10,030 14.5% 30,258 33,920 12.1% 51,567 60,885 18.1%
Operating profit (EBDITA) 1,143 1,566 36.9% 3,418 4,838 41.5% 4,828 7,439 54.1%
Operating profit margin (%) 11.5% 13.5%   10.2% 12.5%   8.6% 10.9%  
Other income 133 241 81.2% 349 696 99.6% 1,051 677 -35.6%
Interest 101 74 -26.5% 304 271 -10.7% 566 701 23.9%
Depreciation 113 74 -34.7% 394 407 3.3% 954 1,263 32.3%
Profit before tax 1,063 1,658 56.1% 3,070 4,857 58.2% 4,360 6,152 41.1%
Tax 363 628 72.7% 1,146 1,717 49.8% 1,495 2,054 37.4%
Minority interest NA NA   NA NA   47 48 2.1%
Share of profit/(loss) of associate NA NA   NA NA   (1) 17  
Profit after tax/(loss) 699 1,031 47.4% 1,924 3,139 63.2% 2,817 4,067 44.4%
Net profit margin (%) 7.1% 8.9%   5.7% 8.1%   5.0% 6.0%  
No. of shares             366.6 366.6  
Diluted earnings per share (Rs)             7.7 11.1  
P/E ratio (x)               20.9  

What has driven performance in FY08?
  • Crompton Greaves (CG) grew its consolidated sales by 21% YoY during FY08. This growth was largely aided by the company’s power division, which grew its sales it an almost equal rate. The segment maintained its share in revenues at 67% during the fiscal. This performance is exactly in line with what the management had estimated. As for the consumer products business, sales grew by 17% YoY. The industrial systems business grew by 23% YoY during the fiscal.

    Segment-wise performance
      Standalone Consolidated
      FY07 FY08 Change FY07 FY08 Change
    Power Systems            
    Revenue (Rs m) 17,412 19,633 12.8% 39,896 48,243 20.9%
    % share 47.2% 46.2%   66.9% 66.9%  
    PBIT margin 10.5% 13.1%   8.2% 9.1%  
    Consumer Products            
    Revenue (Rs m) 9,940 11,668 17.4% 9,940 11,668 17.4%
    % share 27.0% 27.5%   16.7% 16.2%  
    PBIT margin 9.6% 10.4%   9.6% 10.4%  
    Industrial Systems            
    Revenue (Rs m) 8,874 10,580 19.2% 8,971 11,044 23.1%
    % share 24.1% 24.9%   15.1% 15.3%  
    PBIT margin 14.7% 18.4%   14.5% 17.7%  
    Others            
    Revenue (Rs m) 637 606 -5.0% 797 1,119 40.4%
    % share 1.7% 1.4%   1.3% 1.6%  
    PBIT margin -12.5% -12.0%   20.4% -0.2%  
    Total            
    Revenue (Rs m)* 36,864 42,486 15.3% 59,604 72,074 20.9%
    PBIT margin 10.9% 13.3%   9.5% 10.5%  
    * Excluding inter-segment adjustments

  • CG’s operating margins expanded by 2.3% YoY during FY08. This was largely on the back of decline in its raw material and staff costs (both as percentage of sales). Raw material costs, for instance, declined from 59.4% of sales in FY07 to 56.8% in FY08. Factors like cost control and productivity improvement has led to this expansion in operating margins during the fiscal, which was otherwise characterised by spiking prices of key commodities like steel, aluminium and copper.

  • CG recorded a 44% YoY growth in consolidated net profits during FY08. While this was duly aided by the expansion in operating margins, it could have been better but for a 36% YoY decline in other income.

What to expect?
At the current price of Rs 232, the stock is trading at a multiple of 13.2 times our estimated consolidated FY10 earnings for the company, which we believe is attractive for long-term investment perspective. We had recommended a ‘Hold’ on the stock in October 2007 at Rs 340 with a target of Rs 452. Incidentally, post our recommendation, the stock has touched a high of Rs 452 and had retreated back to the current levels, in line with the broader market correction.

  • Read our research report on Crompton Greaves

    While we maintain our positive view in the stock from a 2 to 3 years perspective, we will be updating our research report on the company post the management conference call that is scheduled for the forthcoming Wednesday (28th May, 2008).

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