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Crompton Greaves: Raising profitability - Views on News from Equitymaster

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Crompton Greaves: Raising profitability
Jul 17, 2009

Performance summary
  • Consolidated sales grow by 8% YoY during 1QFY10, led by its 'power systems' business that grew by 9% YoY. Unexecuted order backlog grows by just around 2% YoY.
  • EBIDTA margins expand by 1% YoY during the quarter - improvement aided by decline in raw material costs as they fell to 52% of sales, from 62% of sales in 1QFY09.
  • On the back of superior operating margins, higher other income and lower interest costs, net profits surge 30% YoY during the quarter.


Financial performance snapshot (Consolidated)
(Rs m) 1QFY09 1QFY10 Change
Sales 20,348 21,975 8.0%
Expenditure 18,257 19,499 6.8%
Operating profit (EBDITA) 2,090 2,476 18.5%
Operating profit margin (%) 10.3% 11.3%  
Other income 164 239 46.1%
Interest 137 45 -67.1%
Depreciation 323 371 15.1%
Profit before tax 1,794 2,299 28.1%
Tax 567 695 22.4%
Minority interest 1 8 464.3%
Share of profit/(loss) of associate 6 7 15.0%
Profit after tax/(loss) 1,232 1,604 30.2%
Net profit margin (%) 6.1% 7.3%  
No. of shares 366.6 366.5  
Diluted earnings per share (Rs)*   16.3  
P/E ratio (x)*   18.2  
* On a trailing 12-months basis

What has driven performance in 1QFY10?
  • The 8% YoY growth in Crompton Greaves' (CG) revenues during 1QFY10 was aided by the performance of its 'power systems' segment. This segment, which formed 67% of the company's consolidated sales, recorded a growth of 8.5% YoY. As for the consumer products business, sales grew by 13% YoY during the quarter. The industrial systems business saw a decline of by 3% YoY in its revenues on the back of sluggish capital expenditure in the economy during the period.

    Segment-wise performance (Consolidated)
      1QFY09 1QFY10 Change
    Power Systems      
    Revenue (Rs m) 13,672 14,838 8.5%
    % share 66.9% 67.2%  
    PBIT margin 8.5% 9.4%  
    Consumer Products      
    Revenue (Rs m) 3,631 4,129 13.7%
    % share 17.8% 18.7%  
    PBIT margin 11.6% 14.1%  
    Industrial Systems      
    Revenue (Rs m) 2,879 2,794 -2.9%
    % share 14.1% 12.7%  
    PBIT margin 19.5% 18.8%  
    Others      
    Revenue (Rs m) 257 308 19.9%
    % share 1.3% 1.4%  
    PBIT margin 20.1% 11.2%  
    Total      
    Revenue (Rs m)* 20,438 22,068 8.0%
    PBIT margin 10.7% 11.6%  
    * Excluding inter-segment adjustments

  • CG's operating margins expanded by 1% YoY during 1QFY10. This was largely on the back of decline in raw material costs (as percentage of sales) which decreased from 55% of sales in 1QFY09 to 50.7% in 1QFY10. The softening of prices of key commodities like steel, aluminium and copper was the reason for this decrease in overall raw material costs.

  • CG recorded a 30% YoY growth in consolidated net profits during 1QFY10. While this was duly aided by the expansion in operating margins, it much higher other income, lower interest costs as compared to the same period last year, and a lower effective tax rate (due to abolishment of fringe benefit tax) were the main factors that gave a boost to the company's bottomline.

What to expect?
At the current price of Rs 297, the stock is trading at a multiple of 12.2 times our estimated consolidated FY12 earnings for the company. We have a positive view on the stock from a 2 to 3 years perspective.

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