Crompton Greaves

In the first week of July 2008 the spot price for crude oil was being
 quoted at over US$ 145 per barrel, with everyone predicting it wouId
 cross the US$ 200 mark. Oil was not the only commodity whose price was
 going through the roof. The prices of gas, coal, steel, copper, zinc,
 other metals and all key minerals were rising with every passing day.
 
 The bankruptcy of Lehman Brothers on 14 September 2008 caused the
 meltdown of the entire financial system that continued right up to
 December 2008.
 
 This has been followed by the economic crisis of the real sectors:
 sharp drop in demand, GDP and world trade, followed by recession and
 rising unemployment in all developed economies. Today, the financial
 crisis is a thing of the past because of massive and unprecedented
 interventions by governments and central banks across the world. But
 the recession and economic slowdown continues.  Every country is either
 suffering from shrinking GDP or sharply reduced growth.
 
 As I write to you, the global situation continues to be quite bleak: -
 Although most experts believe that the US economy will bottom out by
 the end of the third quarter of 2009, the estimated GDP growth for the
 year will be-2.9%. In April 2009, unemployment was ruling at 8.9%, and
 rising.  The first four months of 2009 has seen 2.7 million net job
 losses, in addition to 1.7 million in the last quarter of 2008.
 
 - The Euro area is in a deep recession. GDP growth for 2009 is
 estimated at-3.7%.The UKs GDP growth for 2009 is just as bad: -3.7%.
 
 - Japan may be heading towards yet another long term crisis. Industrial
 output has been falling by more than 30%; and GDP growth for 2009 being
 estimated at-6.4%.
 
 - With an estimated 11 % to 12% fall in the real value of world trade
 in 2009, Chinas growth is expected to reduce to 6.5%.
 
 - Indias growth is down from the 9% plus range of the last three years
 to 6.7% in 2008-09, with the chances of it being the same in 2009-10.
 
 In such difficult times, your Company has performed extraordinarily
 well. It has significantly grown consolidated revenues and profits;
 acquired new businesses; and has successfully positioned itself as an
 integrated products, systems and solutions provider across all its
 businesses — both in India and overseas. If anything, your Company has
 accelerated in its journey to be a globally significant player in the
 spaces that it operates.
 
 Let me share with you some key financial facts about your Company for
 FY2009.
 
 Net sales and services grew by 28% to Rs.8,737 crore in FY2009, which
 was a 7 percent point increase in the growth rate over the previous
 year.
 
 - Earnings before interest, depreciation, taxes, and amortisation
 (EBIDTA) increased by 30% to Rs. 1,054 crore — and grew faster than the
 top-line.
 
 - Earnings before interest and taxes (EBIT) rose by 36% to Rs.933 crore
 in FY2009 — and grew faster than EBIDTA.
 
 - Profit before taxes (PBT) grew by 41 % to Rs.867 crore —with PBT
 rising faster than EBIT.
 
 - Return on capital employed (ROCE) increased to 36.4% — up by 460
 basis points from FY2008.
 
 - Earnings per share (EPS) were up 38% to Rs. 15.27 in FY 2009.
 
 These numbers highlight an outstanding performance for which all credit
 goes to your Companys management. Given the people- strength of
 Crompton Greaves throughout the world, I have every reason to believe
 that we will continue to see robust profitable growth in the future.
 
 This brings me to the subject of opportunities. Companies grow by
 identifying opportunities earlier than others, and seizing them before
 their competitors. While we continue to grow and look for opportunities
 globally, we should not neglect our home market, the source of our
 strength and stability.
 
 We see several growth opportunities, of which I shall share three.
 
 The first has to do with power generation. Given the huge shortfall in
 power demand in India — the average nation-wide gap between peak demand
 and supply was 13% in 2008-09 - there is massive scope for creating
 long term income streams through power generation. We believe that the
 profitability of generating power in India would not only be
 substantial, but also be more long lasting than from being a supplier
 of transmission and distribution equipment.
 
 You may recall that, to gain experience in power generation and
 distribution, Crompton Greaves had acquired a 59% shareholding in the
 Malanpur Captive Power Limited, which now successfully operates a 26 MW
 gas based group captive power plant at Malanpur, Madhya Pradesh. We had
 also successfully bid for power distribution across the city of Nagpur
 — which, unfortunately, has not taken off due to regulatory and other
 local level hurdles. We, however, continue to try and resolve the
 issues with the concerned authorities.
 
 In keeping with the strategic need to be in power generation, the Board
 of Directors of your Company has unanimously approved a strategic
 investment of up to Rs.227 crore to purchase 41% of the shares in
 Avantha Power and Infrastructure Limited (APIL) at a book value,
 estimated at approximately Rs.11 per share. APIL, an Avantha Group
 company, is engaged in the generation, transmission and distribution of
 electricity. Today, it operates four captive power plants with an
 aggregate capacity of 95 MW, which is being expanded to 165 MW. in
 addition, it is establishing two new independent power producer (IPP)
 plants, each with a capacity to generate 600 MW in Chhattisgarh and in
 Madhya Pradesh. APIL has already purchased most of the required land,
 obtained the required environmental clearances and coal linkages, as
 well as ancillary support infrastructure like water supply. It has also
 finalised debt financing of the projects through reputed banks. It is
 in discussion with various power traders for tying up long term power
 purchase agreements. Sudhir Trehan, the Managing Director of your
 Company is the non-executive Chairman of APIL.  Moreover, two
 independent Directors of your Company are being nominated to sit on the
 APIL Board.  We believe this will be a significant opportunity for
 Crompton Greaves to expand its footprint into the business of power
 generation.
 
 The second strategic issue relates to India.  Most commentators will
 agree that it is eminently possible for the country to achieve a long
 term GDP growth of 7.5% per annum on a sustained basis. Indeed, many
 believe that it could be better still. Even at 7.5% CAGR,
 
 India will be the second fastest growing large economy of the world —
 second only to China.  That makes the country a very attractive place
 to expand businesses.
 
 Your Company and the name Crompton Greaves enjoys a great reputation
 and considerable franchise throughout India. It is our strategic intent
 to leverage this reputation and bring about quantum leaps in our Indian
 businesses. By that I mean all our three key businesses:
 
 - The power sector — from smart solutions and services to design,
 engineering, equipment supply and erection in power generation,
 transmission and distribution.
 
 - The industrial sector — across all our current plays in motors,
 alternators, railway transportation and signalling equipment - unified
 by drives, instrumentation, control panels and end-to-end solutions.
 
 - The consumer business — fans, lighting, luminaires, pumps and
 appliances — with a major focus on leveraging the ever-increasing
 potential of up-country and rural markets. We want our revolutionary,
 power savings 5 watt LED lamp Pharox, which has a luminosity of 40
 watts, to create waves in India; just as we want Crompton Greaves to be
 the brand of choice in every area that it operates, not just in India
 but throughout the sub-continent.
 
 The third strategic mission is to create a global mindset for all our
 businesses. By that I mean a mindset that creates one-world quality;
 shares best practices across all locations and businesses; recognises
 that customers want smart solutions, not just equipment; and through
 internal efforts as well as strategic acquisitions, becomes a global
 player in providing best-in-class end-to-end solutions.  This journey
 has begun in the Power Systems business with the integration of our
 newer service and solutions-based international acquisitions — Microsol
 in the UK and Ireland, MSE in the USA, and Sonomatra in France. It is
 also coming into play with Pauwels, Ganz and the Power Systems business
 in India working in close coordination. I am seeing it happen in
 Industrial Systems. And with our new products and offerings in the
 Consumer business, I am sure you will see a rapid growth in solution
 centric approaches there as well.
 
 Finally, your Company must grow through its own Intellectual Property.
 We have made a beginning here as well and I hope to be able to come
 back to you with more substantial details in the coming years.
 
 This has been yet another excellent year for your Company. But it is
 just the beginning.  We have to fuse our excellence in execution with
 major strategic plays to become game changers in all our businesses.
 Given the capability of your Companys management and all its
 employees, I have no doubt that we will get there. Sooner than we
 think.
 
                                      Thank you for your support.
 
                                                    GAUTAM THAPAR
                                                         Chairman