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Crompton Greaves: Subdued quarter - Views on News from Equitymaster

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Crompton Greaves: Subdued quarter
Jul 1, 2015

Crompton Greaves has announced fourth quarter results of financial year 2014-15 (4QFY15). The company has reported, flat growth on the topline, and a loss of Rs 1986 m for the quarter.

Performance summary
  • Sales witnessed flattish growth for the quarter.
  • The operating profts declined by 21.9% YoY for the quarter. Operating margins declined by 100 bps and stood at 3.9% for the said period.
  • The bottom line was impacted on the back of poor operating performance, forex losses and exceptional losses.

Financial performance: A snapshot
(Rs m) 4QFY14 4QFY15 Change FY14 FY15 Change
Net sales 38,061 38,081 0.1% 136,315 140,131 2.8%
Expenditure 36,180.5 36,611.5 1.2% 130,195 133,707 2.7%
Operating profit (EBDITA) 1,880 1,469 -21.9% 6,120 6,424 5.0%
EBDITA margin (%) 4.9% 3.9%   4.49% 4.58%  
Other income 840 189 -77.5% 1,491 1,274 -14.5%
Interest (net) 305 298 -2.3% 967 1,047 8.3%
Depreciation 714 623 -12.7% 2,621 2,620 0.0%
Profit before tax 1,702 737 -56.7% 4,023 4,031 0.2%
Forex gain/(loss) 1 -448   924 -474  
Exceptional Items (loss)/gain 0 -1,949   0 727  
Tax 898 336 -62.6% 2361 2,221 -5.9%
Share of profit in associates -172 12   -150.2 16  
Minority Interest 5.2 -1.7   6.8 14  
Profit after share of associates & minority interest 639 -1,986   2,443 2,093 -14.3%
Net profit margin (%) 1.68% -5.21%   1.79% 1.49%  
No. of shares (m)       626.74 626.74  
Diluted earnings per share (Rs)*         3.34  
Price to earnings ratio (x)*         48.22  
* On a trailing 12 months basis

What has driven performance in 4QFY15?
  • The power segment, which is the major contributor to the company's revenues declined by 6.7% YoY for the quarter. On the other hand, the consumer products business witnessed healthy growth at 19.1% YoY, while Industrial systems growth was muted at 2.9% YoY.

    Segment-wise performance (Consolidated)
      4QFY14 4QFY15 Change FY14 FY15 Change
    Power Systems
    Revenue (Rs m) 25,181.1 23,503.3 -6.7% 85,361.1 85,739.6 0.4%
    % Share 66.0% 61.5%   62.4% 61.0%  
    PBIT margin 4.5% 0.9%   2.7% 1.6%  
    Consumer products
    Revenue (Rs m) 7,598.6 9,052.6 19.1% 28,985 32,326.5 11.5%
    % Share 19.9% 23.7%   21.2% 23.0%  
    PBIT margin 11.9% 13.1%   11.6% 12.4%  
    Industrial systems
    Revenue (Rs m) 4,590.2 4721.8 2.9% 18,573.8 18,409.3 -0.9%
    % Share 12.0% 12.4%   13.6% 13.1%  
    PBIT margin 5.8% 8.2%   6.9% 7.6%  
    Others
    Revenue (Rs m) 807.4 914.2 13.2% 3941 4,187.4 6.3%
    % Share 2% 2%   3% 3%  
    PBIT margin 1.9% -25.9%   0.6% -9.0%  
    Total Revenues (Rs m) 38,177 38,192   136,861 140,663  
    PBIT margin 6.1% 4.0%   5.1% 4.5%  

  • On the back of poor performance, the overall operating margins remained under pressure for the quarter. The operating margins in the power systems witnessed sharp decline, while the margins in consumer products and Industrial systems have improved

  • There were various one offs, which impacted the bottomline. The company sold land at Kanjurmarg and made profit of Rs 2781.5 m, however this was off set against the non recurring losses pertaining to litigation claims, project write offs, prior period losses and warranty claims. Other then this, the company incurred forex loss worth Rs 448 m for the quarter. The bottom line was further dragged due to higher other income in 4QFY14. All these factors resulted into losses for the quarter.
What to expect?

The stock of Crompton Greaves is currently trading at 11.6x times our FY17 estimates. The company is undergoing reorganization process of its business across the segments. The company had already announced about demerger of its consumer products business. The Bombay court has approved the scheme, which will be effective in October 2015.

Other than this, the company is looking forward to sell its power system's business in international markets and has also got few bidders for the same. The power segment of the company has been a poor performer since many years now. The proceeds from this sale will help the company in debt reduction. The company has also been looking for various options to monetize its assets too.

Crompton Greaves has been witnessing pressure in some of its business segments while international acquisitions have not proved to be very lucrative either. The company is going through a restructuring process to streamline its operations and stabilize profitability. We are in process of updating our estimates, till then we recommend investors not to Buy the stock at these levels.

We would like to gently remind you that your allocation to equities should be decided upon after keeping aside some safe cash. Also within your overall exposure to equities please ensure that you broadly follow our suggested asset allocation and that no single stock comprises more than 4-5% of your portfolio.

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