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Crompton Greaves: Profits surge - Views on News from Equitymaster

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Crompton Greaves: Profits surge

Nov 11, 2013

Crompton Greaves has announced second quarter results of financial year 2013-14 (2QFY14). The company has reported 9.6% YoY growth in topline while net profits have grown by 38.9% YoY. Here is our analysis of the results.

Performance summary
  • Consolidated topline grows by about 9.6% YoY during the quarter. The growth has come in on the back of about 12.8% YoY increase in consumer products business and 13.7% YoY increase in the power systems business. However, revenues from industrial systems segment declines 9.0% YoY.
  • Operating profits increase by 18.2% YoY during the quarter with margins improving by 30 bps on a YoY basis.
  • Strong performance at the operating level and 56.9% YoY growth in other income results in a 38.9% YoY growth in net profits.
  • The debt/equity ratio stood at 0.6 times as at the end of 30th September 2013.
  • The company declares an interim dividend of Rs 0.4 per share during the quarter.
  • Crompton Greaves bought back 11.7 m shares as a part of its share buyback program which resulted in total outgo of Rs 974.1 m during the quarter.

Consolidated snapshot
(Rsm) 2QFY13 2QFY14 Change 1HFY13 1HFY14 Change
Net sales 29,242  32,049 9.6%   57,353 63,621 10.9%
Expenditure 27,877  30,436 9.2% 54,321 60,561 11.5%
Operating profit (EBDITA) 1,365 1,613 18.2% 3,032 3,061 0.9%
EBDITA margin (%) 4.7% 5.0%   5.3% 4.8%  
Other income 208 326 56.9% 400 679 69.9%
Interest (net) 190 193 2.0% 289 395 36.8%
Depreciation 544 662 21.6% 1,010 1,189 17.7%
Profit before tax 838 1,084 29.2% 2,133 2,156 1.1%
Tax 414 506 22.2% 859 970 12.9%
Share of profit in associates (10) 15 NM (0) (3) NM
Minority interest 5 (9) NM 6 2 -70.9%
Profit after tax/(loss) 420 584 38.9% 1,280 1,185 -7.4%
Net profit margin (%) 1.4% 1.8%   2.2% 1.9%  
No. of shares (m)         629.7  
Diluted earnings per share (Rs)#         1.9  
Price to earnings ratio (x)*         NM  
* TTM EPS is negative
# Based on latest shares outstanding

What has driven performance in 2QFY14?
  • The 9.6% YoY growth in Crompton Greaves' (CG) consolidated sales during 2QFY14 was largely a result of strong performance in its consumer products and power systems business division. Both the divisions grew by 12.8% YoY and 13.7% YoY respectively. Growth from the power systems segment was attributable to strong performance outside India. Lastly, revenues from the industrial systems segment declined 9.0% YoY during the quarter due to lower volumes. The overall revenue growth was partly funded by the currency effect.

    Segment-wise performance (Consolidated)
      2QFY13 2QFY14 Change 1HFY13 1HFY14 Change
    Power Systems
    Revenue (Rs m)  17,819  20,265 13.7% 34,582 38,445 11.2%
    % share  62.6% 64.9%   61.9% 62.2%  
    PBIT margin 0.6% 2.0%   1.5% 1.8%  
    Consumer Products
    Revenue (Rs m)  5,844   6,592 12.8%  12,381     14,477 16.9%
    % share 20.5% 21.1%   22.2% 23.4%  
    PBIT margin 9.5% 11.7%   11.4% 11.8%  
    Industrial Systems
    Revenue (Rs m)  4,816   4,380 -9.0%    8,866 8,901 0.4%
    % share 16.9% 14.0%   15.9% 14.4%  
    PBIT margin 14.6% 7.6%   12.0% 8.1%  
    Revenue (Rs m)* 28,479 31,237 9.7% 55,829 61,822 10.7%
    PBIT margin 4.8% 4.8%   5.4% 5.0%  

  • Operating profits grew by 18.2% YoY due to strong top0line growth and modest rise in total expenses. The operating margins of the company increased 0.3% YoY to 5.0% in 2QFY14. On a segmental basis margins from the power systems increased to 2% in 2QFY14 from 0.6% in 2QFY13. Nonetheless, margins from the industrial systems segment fell to 7.6% amidst declining volumes.

  • Strong performance at the operating level and a 56.9% YoY jump in other income led to a 38.9% YoY growth in the bottom line.
What to expect?
At the current stock price of Rs 125, the stock is trading at a multiple of 10.8 times our estimated FY16 earnings per share. Since our HOLD recommendation in February 2013, the stock has appreciated by 29% and is nearing our target price. Culmination of the restructuring exercise in Belgium and cost rationalization efforts have started bearing fruits which is evident in improved financial performance. This has led to an appreciation in stock price over the last six months or so. However, from current levels we do not see further upside as valuations have turned expensive. Also, challenges in the overseas markets continue to persist especially in the power systems segment. Further, despite the order book being at an all time high levels execution issues continue to prevail. As a result, we recommend investors to SELL the stock at current levels and book their profits.

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Mar 26, 2019 (Close)


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