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Cromp. Greaves: Consumer products leads again - Views on News from Equitymaster

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Cromp. Greaves: Consumer products leads again
Oct 26, 2010

Crompton Greaves has posted a 10% YoY growth in consolidated net sales during 2QFY11. Net profits have grown by 11% YoY. Here is our analysis of the results.

Performance summary
  • Consolidated sales grow by 10% YoY during 2QFY11, led by strong performance from the 'consumer products' business, which records a growth of 24% YoY.
  • Operating margins fall by 0.1% YoY during the quarter.
  • On the back of the topline growth as well as substantially higher other income, profits rise by 11% YoY during the quarter.
  • Declares an interim dividend of Rs 0.80 per share (dividend yield of 0.2%).
  • Recommends issue of bonus shares in the proportion of 3:4.


Consolidated performance snapshot
(Rs m) 2QFY10 2QFY11 Change 1HFY10 1HFY11 Change
Sales 21,890 23,979 9.5%   43,866 47,001 7.1%
Expenditure 18,823 20,647 9.7%   38,322 40,695 6.2%
Operating profit (EBDITA) 3,067 3,332 8.6% 5,543 6,306 13.7%
Operating profit margin (%) 14.0% 13.9%   12.6% 13.4%  
Other income 153 228 48.8% 392  411 4.8%
Interest   52 49 -5.8% 97 99 2.1%
Depreciation 388 458 18.1% 759 873 15.0%
Profit before tax 2,781 3,054 9.8% 5,080 5,745 13.1%
Tax 849 920 8.3%  1,544  1,713 11.0%
Minority interest  5   13  1 -92.1%
Share of profit/(loss) of associate  7  2   14 14 2.2%
Profit after tax/(loss) 1,934 2,136 10.5% 3,537 4,044 14.3%
Net profit margin (%) 8.8% 8.9%   8.1% 8.6%  
No. of shares       366.5  641.4  
Diluted earnings per share (Rs)*         14.2  
P/E ratio (x)*            22.6  
* On a trailing 12-months basis

What has driven performance in 2QFY11?
  • The 10% YoY growth in Crompton Greaves' (CG) consolidated sales during 2QFY11 was largely a result of the company's second largest segment of 'consumer products' recording a sales growth of 24% YoY. Its largest business of 'power systems' (65% of total sales) clocked a 7% YoY sales growth during the quarter. The sales of the 'industrial systems' business also saw a decent growth of 12% YoY.

    Segment-wise performance (Consolidated)
    2QFY10 2QFY11 Change 1HFY10 1HFY11 Change
    Power Systems            
    Revenue (Rs m) 14,773 15,778 6.8% 29,611 30,342 2.5%
    % share  67% 65%   67% 64%  
    PBIT margin 12.1% 12.3%   10.8% 11.5%  
    Consumer Products            
    Revenue (Rs m)        3,740         4,634 23.9%         7,869         9,952 26.5%
    % share  17% 19%   18% 21%
    PBIT margin 14.0% 14.5%   14.0% 14.8%  
    Industrial Systems            
    Revenue (Rs m)         3,217         3,606 12.1%          6,011          6,816 13.4%
    % share 15% 15%   14% 14%  
    PBIT margin 21.9% 19.5%   20.5% 19.1%  
    Others            
    Revenue (Rs m)            247                89 -63.9%             555             175 -68.5%
    % share 1% 0%   1% 0%  
    PBIT margin 12.2% 11.2%   14.7% 14.8%  
    Total            
    Revenue (Rs m)* 21,976 24,108 9.7% 44,044 47,286 7.4%
    PBIT margin 15.1% 12.7%   14.3% 11.8%  
    * Excluding inter-segment adjustments

  • CG's operating margins remained almost flat at 13.9% during 2QFY11. All of its cost heads saw a marginal change as compared to the same quarter of FY10. Based on segments, 'consumer products' again stole the show as its PBIT margins expanded the most from 14% in 2QFY10 to 14.5% in 2QFY11.

  • On the back of a sharply higher other income (to the tune of almost 50% YoY) as well as a fall in interest expenses, CG recorded an 11% YoY growth in consolidated net profits during 2QFY11.

  • During the quarter, the company entered into two joint ventures. The first is with 'ZIV Aplicaciones y Tecnologia, SL (ZIV), a company headquartered in Spain. This will be for a JV in India for manufacturing substation automation systems in extra high voltage and ultra high voltage range. The second JV will be with the 'EIC Group' from Saudi Arabia. This JV is being formed with the intention of consolidating its business presence in the engineering project and construction business in Middle Eastern countries.

What to expect?
At the current price of Rs 321, the stock is trading at a multiple of 18.2 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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