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Crompton: Not yet there

Dec 27, 2001

Crompton Greaves Limited, India`s largest private sector electrical equipment manufacturer continues its battle for survival. Its performance in 2QFY02 has been encouraging. Nevertheless, the company's stock continues to be bound near its 52 week low.

(Rs m)2QFY012QFY02Change1HFY011HFY02Change
Net Sales2,8403,25814.7%4,8796,73838.1%
Other Income (incl. Extraordinary)985209-78.8%1,009215-78.7%
Expenditure3,3233,107-6.5%5,6866,34311.6%
Operating Profit (EBDIT)-483151-131.2%-808394-148.8%
Operating Profit Margin (%)-17.0%4.6%-16.6%5.9%
Interest 215174-18.9%459364-20.6%
Depreciation107100-7.0%238216-8.9%
Profit before Tax18085-52.7%-49528-
Tax01130-
Profit after Tax/(Loss)18075-58.6%-49728-
Net profit margin (%)6.3%2.3%-10.2%0.4%
No. of Shares 52.452.452.452.4
Diluted Earnings per share*13.75.7-19.01.1
P/E Ratio3.719.5
*(annualised)

Crompton posted a 15% rise in 2QFY02 turnover. The company also posted a profit of Rs 75 m but this was lower than what was reported in 2QFY01. However, extraordinary income continues to help Crompton report a positive bottomline.

Crompton earned Rs 314 m from sale of land, but had to incur Rs 173 m as advances written off. The net extraordinary income of Rs 141 m is reflected in the company's other income. In 2QFY01 too, the company had earned a huge Rs 985 m from sale of stake in Skycell.

(Rs m)2QFY012QFY02Change1HFY011HFY02Change
Material costs2,1722,2242.4%3,6134,57226.5%
Staff costs589418-29.0%1,106842-23.9%
Other expenditure563465-17.3%967929-3.9%
Total expenditure3,3233,107-6.5%5,6876,34311.5%

If we exclude the other income figure from both 2QFY01 and 2QFY02, the company will be significantly in the red. The only consolation is that the company's operational performance is much better in September quarter this year. Not only the turnover is up by 15% this quarter, but the operating expenditure has also declined by over 6% YoY. Therefore the company is earning positive operating margins in September quarter. Added to this, the Skycell stake sale helped Crompton prune its debt burden, resulting in reduced interest expenses.

On a consolidated half yearly basis, Crompton's performance is even better. Turnover is up over 38% and operating margins stand at nearly 6%. The company's first quarter of FY02 was better in terms of topline and margin growth but the company's 2QFY02 scored in terms of bottomline aided by the extraordinary income.

This very nature of Crompton's inconsistent performance makes investors wary. Though Crompton has shrugged off from non-core activities, its inconsistent past haunt the company's valuations. For Crompton, any improvement in bottomline without the aid of extraordinary income is likely to improve its valuations.

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