Buy Crompton Greaves; target of Rs 225: Rajathee.net
The stock is trading in a range between Rs 185-205 levels. The kind of
build up would clearly suggest that once the stock crosses Rs 205 levels then
there is going to be lot of short covering in the stock and that can pull it
towards Rs 220-225 odd levels on the higher side. We are recommending a long
position at current levels with a stoploss below Rs 192 for an upside target of
Rs 220-225," he added. Bellow research report.
“Crompton Greaves (CG) reported consolidated PAT of Rs641m which was in line
with our estimates (PLe: Rs654m).
The company reported stable performance on standalone basis, while ramp-up
in international subsidiaries continues to remain slow (achieved EBITDA break
even).
Management expects profitability of
international subsidiaries to improve from Q3FY15 due to execution of better
margin orders. CG is seeing signs of improvement in international markets
(inflow up 81% YoY) and expects domestic market to recover by Q3/04FY15.
The company is also seeing a significant improvement in margin profile of
new orders. We believe CG’s strong product portfolio, improved geographical
reach and better manufacturing footprint should help CG deliver strong growth
once the cycle turns.
We maintain ‘BUY’.” “Standalone sales were down 5% YoY to Rs19bn (PLe:
Rs19.2bn). Sales for the consumer segment were up 9% YoY, largely driven by
strong growth in Fans (up 11% YoY) and Lightings (up 9% YoY). Sales in
Industrial segment (down 6% YoY) continued to be impacted by weak industrial
cycle and delay in dispatch of few orders to Railways. Sales for the power
segment were up 4% YoY.
EBITDA margin improved 60bps YoY to 9%. Power segment improved its EBIT
margin by 130bps YoY to 9.4% (better margin orders and improved mix), Consumer
segment’s margins also improved by 70bps due to better mix and better sourcing,
while EBIT margin in Industrial segment was down 300bps YoY to 8.5% (lower
sales impacting fixed cost absorption).
Adj. PAT was up 2% YoY to Rs1.26bn (PLe: Rs1.26bn). Standalone order book
stood at Rs36.6bn (down 15% YoY) and order inflow for quarter stood at
Rs10.94bn (down 24% YoY), inflow from exports was up 20% YoY to Rs3.2bn.
Management expects domestic market to recovery by Q3/Q4FY15.” “Sales from the
subsidiaries were up 14% YoY to Rs15.3bn (PLe: 16.5%) and flat in Euro terms.
CG managed to break even at EBITDA levels with EBITDA margins of 0.1% (PLe:
0.1%). Management has indicated that all the plants (Belgium, Hungary, Canada,
USA) are close to break even at EBITDA levels and expects the performance to
improve in H2FY15 as better margin orders from systems, automation and power
transformers business will come up for execution.
Management commented that the new orders received in Q1FY15 in transformer
segment are 900bps higher at gross margin level compared to the margins in the
current back log. Order inflow in subsidiaries was up 81% YoY to Rs18.05bn and
order back log was up 9% YoY to Rs59.2bn. Management is seeing signs of recovery
in international markets and healthy growth in inflow in most geography (Europe
up 122% YoY, Middle East up 14% YoY, USA up 4% YoY and South East Asia up 82%
YoY). Consolidated sales were up 9% YoY to Rs34.4bn (PLe: Rs34.1bn). EBITDA was
up 19% YoY to Rs1.7bn and Adj. PAT was up 4% YoY to Rs641m (PLe: Rs654m).”
“The stock is trading at 19x FY16E earnings. Improved cost structure in
international subsidiaries and better economic environment in key markets like
Europe and USA should help company post healthy profitability in international
subsidiaries over the next few years. Company’s strong product portfolio has
improved its geographical reach and better manufacturing footprint should help
CG deliver strong growth once the cycle turns. Healthy balance sheet and cash
flow generation, even in the tough years, gives additional comfort. We maintain
‘BUY’ on the stock,” says Analaysis research report.
Team Rajathee
