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Crompton Greaves: The 'power systems' shocker! - Views on News from Equitymaster
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Crompton Greaves: The 'power systems' shocker!
Jul 19, 2010

Crompton Greaves has posted a 5% YoY growth in consolidated net sales during 1QFY11. Net profits have grown by 19% YoY, led by improvement in operating margins. Here is our analysis of the results.

Performance summary
  • Consolidated sales grow by 5% YoY during 1QFY11, led by the 'consumer products' and 'industrial systems’ businesses. Sales from the largest segment of 'power systems' surprisingly decline 2% YoY during the quarter, thus impacting the overall performance.
  • Operating margins expand to 12.9% YoY during the quarter - improvement aided by stock related adjustments and decline in other costs (both as percentage of sales).
  • Despite a weak topline performance and largely due to higher operating margins, net profits grow by 19% YoY during the quarter.


Financial performance snapshot (Consolidated)
(Rs m) 1QFY10 1QFY11 Change
Sales 21,975 23,022 4.8%
Expenditure 19,499 20,049 2.8%
Operating profit (EBDITA) 2,476 2,973 20.1%
Operating profit margin (%) 11.3% 12.9%  
Other income 239 183 -23.4%
Interest 45 50 11.1%
Depreciation 371 415 11.8%
Profit before tax 2,299 2,691 17.1%
Tax 695 794 14.3%
Minority interest 8 1 -87.3%
Share of profit/(loss) of associate 7 12 76.8%
Profit after tax/(loss) 1,604 1,909 19.0%
Net profit margin (%) 7.3% 8.3%  
No. of shares   641.4  
Diluted earnings per share (Rs)*   13.3  
P/E ratio (x)*   20.3  

What has driven performance in 1QFY11?
  • The 4.8% YoY growth in Crompton Greaves’ (CG) revenues during 1QFY11 was aided by a robust performance of its ‘consumer products’ segment. This segment, which formed 23% of the company’s consolidated sales, recorded a growth of almost 29% YoY. As for the power systems business, sales surprisingly fell by 2% YoY during the quarter. This was largely on the back of a weak performance in CG’s overseas businesses, where about half of the company’s consolidated sales come from. The company’s North American and European markets have been seeing a slowdown recently. The industrial systems business on the other hand saw a growth of about 15% YoY in its revenues.

    Segment-wise performance (Consolidated)
      1QFY10 1QFY11 Change
    Power Systems      
    Revenue (Rs m) 14,838 14,564 -1.8%
    % share 67.2% 62.8%  
    PBIT margin 9.4% 10.7%  
    Consumer Products      
    Revenue (Rs m) 4,129 5,318 28.8%
    % share 18.7% 22.9%  
    PBIT margin 14.1% 15.1%  
    Industrial Systems      
    Revenue (Rs m) 2,794 3,210 14.9%
    % share 12.7% 13.9%  
    PBIT margin 18.8% 18.6%  
    Others      
    Revenue (Rs m) 308 86 -72.2%
    % share 1.4% 0.4%  
    PBIT margin 16.7% 18.6%  
    Total      
    Revenue (Rs m)* 22,068 23,178 5.0%
    PBIT margin 11.6% 12.8%  
    * Excluding inter-segment adjustments

  • CG’s operating margins expanded by 1.6% YoY during 1QFY11. This was largely on the back of decline in raw material costs (as percentage of sales) which decreased from 50.7% of sales in 1QFY10 to 48.1% in 1QFY11. The company has been aggressively working on attaining higher efficiencies in its manufacturing processes such that the raw material content required to make the final product goes down. A fall in other expenditure also aided the margin expansion during the quarter.

  • CG recorded a 19% YoY growth in consolidated net profits during 1QFY11. This was duly aided by the expansion in operating margins. However, the company’s other income came in lower. If it wasn’t for this fall the company’s bottomline growth would have been even higher.

What to expect?
At the current price of Rs 267, the stock is trading at a multiple of 15.1 times our estimated FY13 earnings (ResearchPro subscribers, kindly click here. The stock is richly valued at this juncture and we thus have a cautious view on it at these levels.

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