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Crompton Greaves: Margins take a beating - Views on News from Equitymaster

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Crompton Greaves: Margins take a beating
May 27, 2013

Crompton Greaves has announced its March quarter results. The company has reported 10% YoY increase in topline while the bottomline has declined 75% during the quarter. Here is our analysis of the results.

Performance summary
  • Consolidated topline grows by about 10% YoY during the quarter. The growth has come in on the back of about 8% YoY increase in power systems segment. Revenues from industrial systems segment declined marginally. However, revenues from consumer products business increased 23% YoY.
  • Operating margins contract to 2.3% during the quarter compared to 6.9% in 4QFY12. Margins fell considerably due to 34% YoY increase in purchases of traded goods.
  • Amidst dismal performance at the operating level, the company reported a 75% fall in net profits for the quarter ended March 2013.
  • Topline for the full year goes up by 7% YoY while bottomline suffers a loss to the tune of Rs 614 m.
  • The current quarter results are not fully comparable as the result of a subsidiary company, ZIV Group, acquired during the period, gets consolidated into the accounts in this quarter.

Consolidated financial performance
(Rs m) 4QFY12 4QFY13 Change FY12 FY13 Change
Net sales 30,774 33,873 10.1% 112,486 120,944 7.5%
Expenditure 28,642 33,094 15.5% 104,449 117,113 12.1%
Operating profit (EBDITA) 2,132 779 -63.4% 8,036 3,832 -52.3%
EBDITA margin (%) 6.9% 2.3%   7.1% 3.2%  
Other income 3 51 1558.1% 524 754 44.0%
Interest (net) 139 208 49.4% 463 709 53.1%
Depreciation 639 453 -29.1% 2,600 2,029 -21.9%
Exceptional items -   - 1,207  
Profit before tax 1,357 169 -87.5% 5,497 640 -88.4%
Tax 396 (78) -119.6% 1,821 1,009 -44.6%
Share of profit in associates 40 0 -99.8% 53 (4) -107.3%
Minority interest 3 6 100.0% 7 11 72.3%
Profit after tax/(loss) 1,003 253 -74.8% 3,736 (361) -109.7%
Net profit margin (%) 3.3% 0.7%   3.3% -0.3%  
No. of shares (m)         641.5  
Diluted earnings per share (Rs)         (0.6)  
Price to earnings ratio (x)*         NA  
* trailing twelve months basis

What has driven performance in 4QFY13?
  • The 10% YoY increase in Crompton Greaves' (CG) consolidated sales during 4QFY13 was largely a result of strong performance in its consumer products segment and power systems division. Both the divisions de-grew by 9.9% YoY and 4.9% YoY respectively. However, the industrial systems division reported a flat topline.

    Segment-wise performance (Consolidated)
      4QFY12 4QFY13 Change FY12 FY13 Change
    Power Systems
    Revenue (Rs m) 19,007 20,600 8.4% 71,948 73,359 2.0%
    % share 63.2% 62.4%   64.5% 62.4%  
    PBIT margin 3.5% -2.8%   3.5% -1.5%  
    Consumer Products
    Revenue (Rs m) 6,065 7,477 23.3% 21,336 25,927 21.5%
    % share 20.2% 22.6%   19.1% 22.0%  
    PBIT margin 12.2% 9.9%   12.3% 10.7%  
    Industrial Systems
    Revenue (Rs m) 5,001 4,962 -0.8% 18,202 18,346 0.8%
    % share 16.6% 15.0%   16.3% 15.6%  
    PBIT margin 10.8% 11.3%   11.6% 11.6%  
    Total
    Revenue (Rs m)* 30,073 33,038 9.9% 111,487 117,632 5.5%
    PBIT margin 6.5% 2.2%   6.5% 3.2%  
    * Excluding others & inter-segment adjustments

  • The operating margins of the company declined sharply to 2.3% in 4QFY13 from 6.9% in 4QFY12. This was mainly due to 34% growth in cost of traded goods. Other expenses were also up by 18.4% YoY and were another reason why the margins took a strong beating during the quarter.

  • Amidst poor performance at the operating level, the company reported net profit decline of 75% during the quarter

  • For the full year, an extraordinary loss to the tune of Rs 1.2 bn led the company's consolidated bottomline to go into the red. Excluding the same, bottomline turns positive but shows a huge decline of 77% as compared to the net profits of the previous year.

What to expect?
The company continued to suffer on account of restructuring charges at its Belgium based subsidiary but the good news is that as per the company, the restructuring exercise has now come to an end.

Apart from restructuring charges, the company also incurred employee liability of Rs 1.2 bn during the fiscal as retrenchment compensation for relieving the employees. We believe that post restructuring, the much needed stability in the company's business is well within the realms of possibility. The order backlog of the company is also healthy at Rs 91.3 bn. This provides visibility to the future revenues. However, there are execution issues prevailing in the sector. Also the transformation process going on in the subsidiaries will be time consuming. Hence, we have been adequately conservative in our growth forecast and believe that one continue to HOLD on to the stock from a medium term perspective.

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