• APRIL 30, 2002

Crompton: Turnaround on course

Crompton Greaves Limited, India's largest private sector electrical equipment manufacturer continues its battle for survival. The company has declared Rs 40 m as net profit during FY02 as compared to a net loss of Rs 732 m last year. The company's turnover saw 18% growth YoY.

(Rs m) 4QFY01 4QFY02 Change FY01 FY02 Change
Net Sales 4,676 4,657 -0.4% 12,527 14,726 17.6%
Other Income (incl. Extraordinary) 18 29 57.1% 105 127 21.9%
Expenditure 4,254 4,196 -1.4% 13,229 13,562 2.5%
Operating Profit (EBDIT) 422 461 9.3% -702 1,165 -265.9%
Operating Profit Margin (%) 9.0% 9.9%   -5.6% 7.9%  
Interest 177 191 7.6% 871 744 -14.5%
Depreciation 127 109 -13.6% 473 445 -5.9%
Profit before Tax 137 190 39.0% -1,941 103  
Extraordinary items 0 -173   1,212 -35  
Tax 3 17 576.0% 3 28  
Profit after Tax/(Loss) 134 1   -732 40  
Net profit margin (%) 2.9% 0.0%   -5.8% 0.3%  
No. of Shares 52.4 52.4   52.4 52.4  
Diluted Earnings per share* 10.3 0.1   -14.0 0.8  
P/E Ratio         55.7  

Crompton's performance seems even more encouraging if we exclude the extraordinary items from both the years. During FY01, Crompton earned Rs 1,212 m as extraordinary income (sale of Skycell - Rs 985 m and Rs 227 m as net surplus of transfer of low tension control gear unit and Faxemail). In FY02 too, Crompton earned Rs 310 m from sale of land, but had to incur Rs 345 m as advances written off. The net extraordinary expenses of Rs 35 m are reflected in the FY02 results. Excluding these, the company earned Rs 75 m in FY02, as compared to a loss of Rs 1,944 m last year.

This improvement is not only the result of operational restructuring, but also of management restructuring. The Thapar family managed to bring clarity to the management structure. Pursuant to the Thapar family settlement agreement, the voting in respect of 29.1% of the company's shares, previously held by various Thapar Group companies have been transferred in favour of Mr Brij Mohan Thapar. The company now forms part of the BM Thapar Group.

Cost break-up
(Rs m) 4QFY01 4QFY02 Change FY01 FY02 Change
Material costs 3,340 3,130 -6.3% 9,175 9,896 7.9%
Staff costs 340 474 39.4% 1,952 1,750 -10.3%
Other expenditure 574 592 3.0% 2,102 1,915 -8.9%
Total expenditure 4,254 4,196 -1.4% 13,229 13,562 2.5%

However, the battle is far from over. The company's fourth quarter saw a marginal improvement in topline and managed to add only Rs 1 m to FY02 bottomline. Though the company managed to improve operating margins, a Rs 173 m extraordinary charge as advances write off took the wind out of 4QFY02 numbers. Though the write offs are a sign of way forward towards the restructuring, however, if such write off come often in future, then any improvement at operational level is rendered worthless.

The stock price is at Rs 43 levels, up a significant 43% in the last three months. This indicates that the market has taken notice of Crompton's initiatives. But the company's past is likely to haunt valuations for some time to come.

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