India Equity Institutional Research | Engineering & Capital Goods

Result Update

Crompton Greaves Ltd

Rs 94

Margins to improve gradually

BUY

Crompton Greaves consolidated net sales increased by 10% YoY to Rs. 3,387 cr. However, consolidated EBIDTA margins decline to 2.3% which was below expectation. Overseas business contributed to decline in margins as it registered a loss of Rs 64 cr at EBIDTA levels. Consequently PAT declined by 75% to Rs. 25.3 cr. For the quarter, order inflow increased 3% YoY to Rs. 2,983 cr and order backlog stands at Rs. 9,126 cr. Execution largely in line with expectation Crompton Greaves consolidated net sales increased by 10% YoY. Consumer segment contributed to growth in revenues as it increased by 23% YoY to Rs. 747 cr. Increased focus on increasing penetration has started benefiting CG. However, domestic power system disappointed as its sales declined by 4.8% to Rs. 836 cr in Q4FY13. Completion of restructuring and ramp up in Hungary resulted in 20% growth in overseas power system business. The company has delivered 18 power transformers to customers of 32 PT transferred to Hungary facility. The company has guided for a sales growth of 8% to 10% for FY14. Disappointment on EBIDTA front EBIDTA margins declined by 463 bps to 2.3% YoY as overseas power system continued to be in the red. Belgium continued to be negative as the facility is stabilizing and impact of restructuring will gradually kick in. In addition quality related issues also impacted overseas power system margins. Domestic power system also delivered margins below expectation as EBIT margins declined by 456 bps to 7.1%. Company attributed change in sales mix (higher proportion of 765Kv transformers vs reactors and higher proportion of EPC vs product). Consumer segment margins also declined by 230 bps to 9.9% on account of higher marketing expense and execution of institutional order. Management refrained from giving any margin guidance for Fy14 as it mentioned Liquidated damages for projects are difficult to assess considering facilities are stabilizing and project have been transferred from one facility to another. Order backlog stands gives comfort at 0.8x TTM sales Order inflow increased 3% YoY to Rs. 2,983 cr. During the quarter Power system orders constituted Rs 2,451 c r (India – Rs 537 cr and Overseas – Rs 1,914 cr). Industrial system contributed Rs 531 cr of orders. The company has been selective in order intake considering intense pricing pressure in the industry. For FY13 order inflows stand at Rs 10,544 cr vs 10,264 cr in FY12. Order backlog stands at Rs 9,126 cr [ India Rs 3,799 cr and Overseas Rs 5,326 cr] Our View & Valuation At CMP of Rs. 94, Crompton Greaves is trading at P/E of 12.6 x its FY14 EPS and 10x its FY15E. The company has finished its restructuring of Belgium operation. We believe margins are expected to improve from current levels as impact of restructuring sets in gradually and as facilities stabilize. Considering the same and attractive valuation we recommend a BUY on the stock with price target of Rs. 113. Exhibit 1: Key Financials Particulars Sales EBITDA PAT OPM (%) NPM (%) EPS ROCE (%) RONW (%) P/E P/Bv EV/EBIDTA

(Rs. Crore) FY12 11,248.6 803.6 373.6 7.1 3.3 5.8 12.6 10.3 16.1 1.7 8.2

FY13 12,094.4 383.2 125.6 3.2 -0.3 2.0 4.6 -1.0 48.0 1.7 19.1

FY14E 13,351.5 855.9 476.7 6.4 3.6 7.4 12.3 12.0 12.6 1.5 8.6

FY15E 15,191.4 1,037.2 602.4 6.8 4.0 9.4 13.5 13.4 10.0 1.3 7.1

Price Outlook: Rs 113 Potential upside: 20% Previous target: Rs 119 Market Data Shares outs (Cr)

64.14

Equity Cap (Rs Cr)

128.28

Mkt Cap (Rs Cr)

6100

52 Wk H/L (Rs)

141/87

Avg Vol (1yr avg)

2,722,500

Face Value (Rs)

2

Bloomberg Code

CRG IN

Market Info: SENSEX

20,000

NIFTY

6,083

Price Performance

Share Holding pattern (%) Particulars

Mar-13

Dec-12

Chg

Promoters

41.69

41.69

0.00

FIIs

14.85

17.89

-3.04

DIIs

24.25

21.77

2.48

Others

19.21

18.65

0.56

Total

100.0

100.0

Source: BSE

Analyst: Chinmay Gandre [email protected]  91-22-6696 5571

www.krchoksey.com  91-22-6696 5203  91-22-6691 9569

Source: Company, KRChoksey Research KRChoksey Research is also available on Bloomberg KRCS, Thomson Reuters, Factset and Capital IQ

28h May 2013

Crompton Greaves Ltd

Exhibit 2: Q4FY13 Consolidated Result

(Rs. Crore)

Consolidated

Q4FY13

Q3FY13

Q4FY12

Q-o-Q

Y-o-Y

Net Sales Total Expenditure EBITDA

3,387.3 -3,309.4 77.9

2,971.8 -2,969.8 2.0

3,077.4 -2,864.2 213.2

14.0% 11.4% 3776.6%

10.1% 15.5% -63.4%

2.3% -45.3 32.6 -20.8

0.1% -56.6 -54.6 -21.3

6.9% -63.9 149.3 -13.9

223 bps -19.9% -159.8% -2.1%

-463 bps -29.1% -78.2% 49.4%

Other income Exceptional items Profit before tax Tax

5.1 0.0 16.9 7.8

30.4 -120.7 -166.2 -22.8

0.3 135.7 -39.6

-83.1% -110.2% -134.1%

1558.1% -87.5% -119.6%

Net Profit Minority interest Share of Profit & Loss of Associate PAT after minority

24.7 0.6 0.0 25.3

-189.0 0.0 -0.4 -189.4

96.0 0.3 4.0 100.3

-113.1% 5500.0% -102.6% -113.3%

-74.3% 100.0% -99.8% -74.8%

0.7% 3.9

-6.4% -29.5

3.3% 15.6

712 bps -113.3%

-251 bps -74.8%

EBITDA Margin (%) Depreciation EBIT Interest

Net Profit Margin (%) EPS (In Rs.)

Source: Company data, KRChoksey Research Exhibit 3: Consolidated Segmental Performance Particulars Sales Power System

(Rs. Crore)

Q4FY13

Q3FY13

Q4FY12

Q-o-Q

Y-o-Y

2,060.0

1,817.7

1,900.7

13.3%

8.4%

747.7 496.2

606.9 451.8

606.5 500.1

23.2% 9.8%

23.3% -0.8%

Consumer Products Industrial Systems EBIT Margins Power System

-2.8%

-5.8%

3.5%

291 bps

-631 bps

Consumer Products Industrial Systems

9.9% 11.3%

10.4% 11.3%

12.2% 10.8%

-53 bps 3 bps

-230 bps 44 bps

Source: Company data, KRChoksey Research. Exhibit 4: Q3FY13 Standalone Result

2

(Rs. Crore)

Particulars

Q4FY13

Q3FY13

Q4FY12

Q-o-Q

Y-o-Y

Net Sales Total Expenditure EBITDA EBITDA Margin (%)

2,059.9 -1,917.9 142.0 6.9%

1,746.1 -1,613.5 132.5 7.6%

1,940.6 -1,743.3 197.3 10.2%

18.0% 18.9% 7.1% -70 bps

6.1% 10.0% -28.0% -328 bps

Depreciation EBIT Interest Other income

-19.3 122.7 8.6 9.1

-18.0 114.5 3.2 26.0

-18.5 178.8 -4.6 4.4

7.2% 7.1% 167.5% -65.0%

4.2% -31.4% -289.5% 105.4%

Profit before tax Tax Net Profit PAT%

140.4 -32.7 107.7 5.2%

143.7 -37.6 106.2 6.1%

178.7 -41.8 136.9 7.1%

-2.3% -13.0% 1.5% -85 bps

-21.4% -21.8% -21.3% -182 bps

KRChoksey - Institutional Research

Crompton Greaves Ltd

Exhibit 5: Standalone Segmental Performance Particulars

(Rs. Crore)

Q4FY13

Q3FY13

Q4FY12

Q-o-Q

Y-o-Y

Power System

836.2

670.1

878.2

24.8%

-4.8%

Consumer Products

747.7

607.0

606.5

23.2%

23.3%

Industrial Systems

395.2

376.4

393.2

5.0%

0.5%

Sales

EBIT Margins Power System

7.1%

7.9%

11.7%

-81 bps

-456 bps

Consumer Products

9.9%

10.4%

12.2%

-53 bps

-230 bps

13.2%

15.3%

13.2%

-208 bps

-2 bps

Industrial Systems

Exhibit 6: Overseas Subsidiaries Performance Overseas Subsidaries Net Sales Total Expenditure EBITDA

Q4FY13

(Rs. Crore) Q3FY13

Q4FY12

Q-o-Q

Y-o-Y

1,327.4

1,225.8

1,136.7

8.3%

16.8%

-1,391.5

-1,356.3

-1,120.9

2.6%

24.1%

-64.1

-130.5

15.8

-50.9%

-504.2%

-4.8%

-10.6%

1.4%

582 bps

-622 bps

Depreciation

-26.0

-38.6

-45.4

-32.5%

-42.7%

Interest

-29.5

-24.5

-9.4

20.3%

214.1%

-3.9

4.4

-4.1

-190.0%

-4.1%

-123.5

-309.9

-43.0

-60.2%

187.1%

EBITDA Margin (%)

Other income Profit before tax Net Profit PAT%

-83.0

-295.1

-40.8

-71.9%

103.3%

-6.3%

-24.1%

-3.6%

1782 bps

-266 bps

Exhibit 7: Overseas Power system Performance Particulars

(Rs. Crore)

Q4FY13

Q3FY13

Q4FY12

Q-o-Q

Y-o-Y

1,223.8

1,147.5

1,022.5

6.6%

19.7%

-118.1

-157.6

-36.6

-25.1%

222.8%

Sales Power System EBIT Rs Cr Power System

Exhibit 8: Order details Order back log

3

Order inflows

KRChoksey - Institutional Research

Crompton Greaves Ltd

Financials Profit & Loss A/c Particulars Net Sales Total Expenditure Operating Profit Other Income Depreciation EBIT Interest Exceptional item PBT Taxes Less: Minority Int add profit / loss in asso PAT Adj PAT Growth in sales (%) Growth in Operating profits (%) Growth in PAT (%) OPM (%) Net Profit Margin (%)

(Rs. Crore) FY12

FY13

FY14E

FY15E

11,248.6 10,445.0 803.6 62.8 260.0 606.4 56.7

13,351.5 12,495.6 855.9 100.0 209.6 746.3 80.0

15,191.4 14,154.2 1,037.2 100.0 232.7 904.5 60.0

549.7 182.1 0.7 5.3 373.6 373.6 12.4 -40.2 -59.7 7.1

12,094.4 11,711.3 383.2 75.4 202.9 255.7 70.9 -120.7 64.0 100.9 1.1 -0.4 -36.1 125.6 7.5 -52.3 -66.4 3.2

666.3 196.6 1.0 6.0 476.7 476.7 10.4 123.4 279.5 6.4

844.5 249.1 1.0 6.0 602.4 602.4 13.8 21.2 26.4 6.8

3.3

-0.3

3.6

4.0

Source: Company data, KRChoksey Research.

Balance Sheet Particulars

(Rs. Crore) FY12

FY13E

FY14E

FY15E

Sources of Funds Share Capital

128.3

128.3

128.3

128.3

Reserves and Surplus

3,482.6

3,433.2

3,835.6

4,363.5

Total Shareholders Funds

3,610.9

3,561.5

3,963.9

4,491.8

Total Loan Funds

1,040.0

1,851.5

1,951.5

2,051.5

135.6

146.9

146.9

146.9

Net Deferred Tax Liability Minority interest

15.7

9.5

9.5

9.5

Total Capital Employed

4,802.2

5,569.3

6,071.7

6,699.7

Application of Funds Net Block Capital Work in Progress Investments Net Current Assets Total Assets

1,527.8 149.3 786.4 1,571.4 4,802.2

2,916.3 150.0 790.8 1,370.3 5,569.3

3,256.7 150.0 786.4 1,536.6 6,071.7

3,574.0 150.0 786.4 1,847.3 6,699.7

Source: Company data, KRChoksey Research.

4

KRChoksey - Institutional Research

Crompton Greaves Ltd

Cash flow Statement

(Rs. Crore)

Particulars

FY12

FY13E

FY14E

FY15E

Pre tax profit

549.7

64.0

666.3

844.5

260.0

202.9

209.6

232.7

Add Depreciation Interest Exp Profit before working capital changes

56.7

70.9

80.0

60.0

878.7

337.9

955.9

1,137.2

Working capital changes

-227.7

259.8

-92.8

-236.6

Less Taxes

-243.6

-243.9

-196.6

-249.1

Net Cash flow from operating activities

413.3

353.8

666.5

651.5

Net Cash flow in investment activities

-462.3

-1,016.1

-545.6

-550.0

Net Cash flow from financing activities

248.2

710.8

-54.4

-34.4

Net increase /(decrease) in cash

199.2

48.5

66.5

67.1

Op. balance of cash and cash equivalents

298.4

497.6

546.1

612.6

Cl. balance of cash and cash equivalents

497.6

546.1

612.6

679.7

FY12

FY13E

FY14E

FY15E

7.1

3.2

6.4

6.8

Source: Company data, KRChoksey Research.

Ratios Particulars Profitability Ratios OPM (%) PAT Margin (%)

3.3

-0.3

3.6

4.0

RONW (%)

10.3

-1.0

12.0

13.4

ROCE (%)

12.6

4.6

12.3

13.5

EPS (Rs.)

5.8

-0.6

7.4

9.4

Adj EPS (Rs.)

5.8

2.0

7.4

9.4

CEPS (Rs.)

9.8

2.6

10.6

12.9

56.3

55.5

61.8

70.0

16.1

48.0

12.6

10.0

P/CEPS (x)

9.6

36.3

8.9

7.3

P/BV (x)

1.7

1.7

1.5

1.3

Ev/EBIDTA

8.2

19.1

8.6

7.1

Debt/Equity

0.3

0.5

0.5

0.5

Current Ratio

1.4

1.3

1.3

1.3

Debtors turnover ratio

4.0

3.7

3.8

3.8

Inventory turnover ratio

8.5

8.0

8.1

8.6

Fixed Asset Turnover

7.4

6.2

5.9

5.9

Per Share Ratios

BV Per Share (Rs.) Valuation Ratios P/E (x)

Capital Structure Ratios

Turnover Ratios

Source: KRChoksey Research.

5

KRChoksey - Institutional Research

Crompton Greaves Ltd

Rajiv Choksey

Director

[email protected]

+91-22-6696 5555

Anuj Choksey

Head-Institutional Equities

[email protected]

+91-22-6696 5500

Kunal Dalal

Head–Institutional Research

[email protected]

+91-22-6696 5574

Crompton Greaves

Rating Legend

Date

CMP (Rs)

TP (Rs)

Recom.

28-May-13

94

113

BUY

31-Jan-13

107

119

ACCUMULATE

05-Nov-12

113

116

Hold

24-Jul-12

120

116

Reduce

29-May-12

112

116

Hold

2-Feb-12

145

147

Reduce

5-Jan-12

133

136

Reduce

Our Rating

Upside

Buy

More than 15%

Accumulate

5% - 15%

Hold

0 – 5%

Reduce

-5% – 0

Sell

Less than -5%

Disclaimer: This publication has been prepared solely for information purpose and does not constitute a solicitation to any person to buy or sell a security. While the information contained therein has been obtained from sources believed to be reliable, investors are advised to satisfy themselves before making any investments. Kisan Ratilal Choksey Shares & Sec Pvt Ltd., does not bear any responsibility for the authentication of the information contained in the reports and consequently, is not liable for any decisions taken based on the same. Further, KRC Research Reports only provide information updates and analysis. All opinion for buying and selling are available to investors when they are registered clients of KRC Investment Advisory Services. As per SEBI requirements it is stated that, Kisan Ratilal Choksey Shares & Sec Pvt Ltd., and/or individuals thereof may have positions in securities referred herein and may make purchases or sale thereof while this report is in circulation. Please send your feedback to [email protected] Visit us at www.krchoksey.com Kisan Ratilal Choksey Shares and Securities Pvt. Ltd. Registered Office: 1102, Stock Exchange Tower, Dalal Street, Fort, Mumbai – 400 001. Phone: 91-22-6633 5000; Fax: 91-22-6633 8060. Branch Office: ABHISHEK, 5th Floor, Link Road, Andheri (W), Mumbai – 400 053. Phone: 91-22-6696 5555; Fax: 91-22-6691 9576. 6

KRChoksey - Institutional Research