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Cromp. Greaves: Consumer products lead the way - Views on News from Equitymaster

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Cromp. Greaves: Consumer products lead the way
Oct 27, 2009

Performance summary
  • Consolidated sales grow by 5% YoY during 2QFY10, led by strong performance from the ‘consumer products’ business, which records growth of 24% YoY.
  • Operating margins expand substantially by 3% YoY – improvement aided by stock related adjustments, raw material costs also declined as percentage of sales.
  • On the back of improvement in operating margins and lower interest expenses, met profits surge by 61% YoY during the quarter.
  • Performance during the first half (1HFY10) almost similar as profits rise by 46% YoY despite a tepid sales growth of 6% YoY.
  • Declares an interim dividend of 80 paisa per share.


Consolidated performance snapshot
(Rs m) 2QFY09 2QFY10 Change 1HFY09 1HFY10 Change
Sales 20,927 21,890 4.6% 41,274 43,866 6.3%
Expenditure 18,617 18,823 1.1% 36,874 38,322 3.9%
Operating profit (EBDITA) 2,310 3,067 32.7% 4,401 5,543 26.0%
Operating profit margin (%) 11.0% 14.0%   10.7% 12.6%  
Other income 133 153 15.5% 296 392 32.4%
Interest 166 52 -68.9% 303 97 -68.1%
Depreciation 343 388 13.0% 666 759 14.0%
Profit before tax 1,934 2,781 43.8% 3,728 5,080 36.2%
Tax 725 849 17.1% 1,292 1,544 19.5%
Minority interest 6 5 -23.8% 8 13 64.9%
Share of profit/(loss) of associate (2) 7   (1) 14  
Profit after tax/(loss) 1,201 1,934 61.0% 2,427 3,537 45.7%
Net profit margin (%) 5.7% 8.8%   5.9% 8.1%  
No. of shares       366.6 366.5  
Diluted earnings per share (Rs)*         18.3  
P/E ratio (x)*         18.7  
* On a trailing 12-months basis

What has driven performance in 2QFY10?
  • The lackluster 5% YoY growth in Crompton Greaves’ (CG) consolidated sales during 2QFY10 was largely a result of a weak performance from its largest business of ‘power systems’ (67% of total sales). This segment clocked sales growth of just around 1% YoY during 2QFY09. However, the second largest segment of ‘consumer products’ was the star performed during the quarter, as it grew sales by 24% YoY. Sales of the ‘industrial systems’ business grew by 5% YoY.

    Segment-wise performance (Consolidated)
      2QFY09 2QFY10 Change 1HFY09 1HFY10 Change
    Power Systems            
    Revenue (Rs m) 14,624 14,773 1.0% 28,295 29,611 4.6%
    % share 69.6% 67.2%   68.3% 67.2%  
    PBIT margin 9.2% 12.1%   8.8% 10.8%  
    Consumer Products            
    Revenue (Rs m) 3,016 3,740 24.0% 6,648 7,869 18.4%
    % share 14.4% 17.0%   16.0% 17.9%  
    PBIT margin 10.7% 14.0%   11.2% 14.0%  
    Industrial Systems            
    Revenue (Rs m) 3,029 3,182 5.0% 5,908 5,976 1.1%
    % share 14.4% 14.5%   14.3% 13.6%  
    PBIT margin 17.7% 20.8%   18.6% 19.9%  
    Others            
    Revenue (Rs m) 333 282 -15.2% 589 590 0.1%
    % share 1.6% 1.3%   1.4% 1.3%  
    PBIT margin 12.2% 26.0%   12.8% 21.2%  
    Total            
    Revenue (Rs m)* 21,002 21,976 4.6% 41,440 44,044 6.3%
    PBIT margin 10.6% 13.9%   10.7% 12.7%  
    * Excluding inter-segment adjustments

  • CG’s operating margins expanded sharply by 3% YoY during 2QFY10. This was largely on account of stock related adjustments. The company’s raw material costs also declined, thereby aiding the improvement in profitability. Based on segments, ‘consumer products’ again stole the show as its PBIT margins expanded from 10.7% in 2QFY09 to 14% in 2QFY10.

  • On the back of a sharp improvement in operating margins and lower interest costs (down 69% YoY), CG recorded a strong 61% YoY growth in consolidated net profits during 2QFY10. The company’s effective tax rate also declined from 37.5% in 2QFY09 to 30.5% in 2QFY10, thereby helping matters at the bottomline level.

What to expect?
At the current price of Rs 342, the stock is trading at a multiple of 13.9 times our estimated consolidated FY12 earnings. CG’s 1HFy10 performance is almost in line of meeting our full year FY10 estimates. We maintain our positive view on the stock from a 2 to 3 years perspective.

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