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Crompton Greaves: Profitability rises despite moderate sales - Views on News from Equitymaster
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  • Jul 3, 2014 - Crompton Greaves: Profitability rises despite moderate sales

Crompton Greaves: Profitability rises despite moderate sales
Jul 3, 2014

Crompton Greaves has announced fourth quarter results of financial year 2013-14 (4QFY14). The company has reported 11.2% YoY growth in topline and 152.6% YoY increase in profit after tax during the quarter. Here is our analysis of the results.

Performance summary
  • Consolidated topline grew by about 11.2% YoY during the quarter. The growth was led by overseas business while the domestic business has had disappointing performance this quarter.
  • Operating profits for the company has increased by 141% YoY led by increase in margin in the domestic business; while overseas subsidiaries as a whole reported zero margin.
  • Strong performance at the operating level and increase in other income saw the company post a profit growth of 153% YoY in the quarter.
  • The company declared second interim dividend of Rs 0.8 per share during the quarter.
  • Order backlog of the company stood at Rs 93 bn (up 2% YoY ) at the end of the quarter.


(Rs m) 4QFY13 4QFY14 Change FY13 FY14 Change
Net sales 33,873 37,665 11.2% 120,944 134,806 11.5%
Expenditure 33,094 35,784 8.1% 117,113 127,986 9.3%
Operating profit (EBDITA) 779 1,881 141.4% 3,832 6,820 78.0%
EBDITA margin (%) 2.3% 5.0%   3.2% 5.1%  
Other income 51 840 1534.2% 754 1,716 127.4%
Interest (net) 208 305 46.4% 709 967 36.3%
Depreciation 453 714 57.5% 2,029 2,621 29.2%
Profit before tax 169 1,703 905.7% 1,848 4,947 167.8%
Exceptional items  - NM (1,207) - NM
Tax (78) 898 NM 1,009 2,361 133.9%
Share of profit in associates 0 (172) NM (4) (150) NM
Minority interest 6 5 -7.1% 11 7 -39.3%
Profit after tax/(loss) 253 638 152.6% (361) 2,443 NM
Net profit margin (%) 0.7% 1.7%   -0.3% 1.8%  
No. of shares (m)         626.8  
Diluted earnings per share (Rs)#         3.9  
Price to earnings ratio (x)         52.1  
# Based on latest shares outstanding

What has driven performance in 4QFY14 and FY14?
  • The growth in sales during the quarter was a result of increase in overseas business of Power Systems segment particularly. In the domestic market the segment suffered due to slowdown in demand despite increase in exports.

  • The Industrial Systems segment reported about 10% decline in sales due to unfavorable business environment. The Consumer segment reported flat growth due to supply chain hurdles that impacted the company's appliances business and also because of generally weak consumer sentiments.

    Segment-wise performance (Consolidated)
      4QFY13 4QFY14 Change FY13 FY14 Change
    Power Systems
    Revenue (Rs m) 20,600 25,009 21.4% 73,359 84,776 15.6%
    % share  62.4% 67.6%   62.4% 64.5%  
    PBIT margin -2.8% 4.5%   -1.5% 2.8%  
    Consumer Products
    Revenue (Rs m) 7,477 7,484 0.1% 25,927 28,471 9.8%
    % share  22.6% 20.2%   22.0% 21.7%  
    PBIT margin 9.9% 12.1%   10.7% 11.9%  
    Industrial Systems
    Revenue (Rs m) 4,962 4,481 -9.7% 18,346 18,164 -1.0%
    % share  15.0% 12.1%   15.6% 13.8%  
    PBIT margin 11.3% 6.0%   11.6% 7.1%  
    Total
    Revenue (Rs m)* 33,038 36,974 11.9% 117,632 131,410 11.7%
    PBIT margin 0.3% 4.3%   2.6% 3.6%  
    * Excluding others & inter-segment adjustments

  • Operating profits for the company has grown substantially. This has also resulted in 2.7% increase in margins from 2.3% in 4QFY13 to 5% in 4QFY14. The increase in margin is due to decline in raw material cost as a percentage of revenues particularly in the domestic business.

  • Segment wise, Power Systems has reported 4.5% margin as compared to loss in the last year's corresponding quarter. The increase was on account of increase in realizations. Industrial Systems reported sharp decline in margins from 11.3% in 4QFY13 to 6% in 4QFY14. The margins took a hit due to start of HT motors plant in Bhopal which resulted in decline in operating leverage. Consumer segment reported increase in margins from 9.9% in 4QFY13 to 12.1% in 4QFY14.

  • The company reported net profit growth of 152.6% YoY led by strong operating level performance as well as substantial increase in other income.

  • The company secured orders of Rs 25 bn in 4QFY14; while the total inflow for the year at a consolidated level stood at Rs 98 bn.

  • For FY14, sales increased by 11.5% led by good performance of Power Systems and Consumer Products. Operating profit increased by 78% YoY. Net profit stood at Rs 2.4 bn as compared to a loss of Rs 361 m in the corresponding quarter of the previous year.
What to expect?
Crompton Greaves is going through a restructuring process to streamline its operations and stabilize profitability. We believe it shall take a while before the results are reflected in the numbers. Also, the management has stated in the conference call that it does not expect a turnaround in overseas performance before 2HFY15. The domestic business is likely to see an uptick as and when the investment cycle upturn begins.

At the current stock price of Rs 203, the stock is trading at a multiple of 52x times its TTM earnings. The valuations seem expensive considering the concerns in overseas business as well as subdued growth in Consumer business which was once a cash cow for the company. . Since FY14 is over, we shall revisit our estimates and view on Crompton Greaves. We shall soon update investors with a revised view, if any, and target price based on FY17 earnings. Till then, we maintain our SELL view on the stock and recommend investors avoid buying the stock at this price levels.

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