The history of all growing global corporations is replete with
instances when events have required a strategic change of gear. FY2012
was such a time for your Company. after a decade of rapidly growing
revenues, EBIDTA, EBIT and Pat that made Crompton Greaves the cynosure
of many eyes, there was a sudden break in the momentum. why did this
happen- and, more importantly, where do we go from here-
Before I answer these questions, let me share some facts. Despite the
slowdown in growth and profits, your Company''s consolidated net Sales
and income from services grew by over 12% to Rs.11,249 crore in FY2012,
or over US$ 2.3 billion. The unexecuted order book as on 31 March 2012
was up by 16.7% and stood at Rs.8,368 crore. Crompton Greaves still
earned EBIDTA of Rs.856 crore in FY2012; PBT of Rs.550 crore; and PAT
of Rs.374 crore. Despite the return on capital employed (ROCE) being
less than in the past, the fact is that your Company''s ROCE remains in
the top quartile among comparable players in India and the rest of the
So, what Crompton Greaves witnessed in FY2012 was a brake. It was not a
dramatic decline to negative territory.
To return to my first question: why did it happen- The reduction in
Profitability was mostly on account of CG Power Systems. It occurred due
to four factors.
First, intensifed global competition. In the last eighteen months,
power equipment prices came under severe pressure with many Chinese and
South Korean manufacturers attempting to increase capacity utilisation
by offering rock-bottom quotes to major global customers. The good news
is that such intense competition may have passed. Buyers have
understood which players can deliver quality, and those who cannot.
Equally, it is important to note that no power equipment manufacturer
or solutions provider will enjoy the kind of prices and margins that
were the norm for half a decade leading up to FY2010. Companies will
have to be more productive and competitive; and focus on bundling
equipment as a part of selling end-to-end solutions. Your Company is no
exception to this reality.
Second, increasing raw material costs, which rose at rates much higher
than finished goods prices, especially for copper and steel.
Consequently, all companies witnessed increases in their material-to-
Sales ratio (MSR). As I write, it looks as if the growth in MSR has
played out, and there are beginnings of a moderate decline in the
Third, many power transmission and distribution customers were not
taking delivery of their transformers or sub-stations, usually on
account of uncertainties and also cash problems. This was particularly
true in Europe and North America. It blocked scarce factory space, did
not allow for revenue recognition, and extended the working capital
cycle, with its attendant costs.
Fourth, CG Power had certain internal issues regarding work flow at some
of its facilities. From the last quarter of FY2011 and through the first
three quarters of FY2012, these led to blocking of lines and higher
costs which affected EBIDTA. The problems have been identified and will
be soLVed in FY2013.
Despite these constraints, there were many successes. Let me highlight
a few for the power business, which accounted for 65% of your Company''s
consolidated top line.
- In FY2012, CG Power India''s Plant at Mandideep, near Bhopal delivered
to the Power Grid Corporation of India Limited (PGCIL) (i) three 765 kV
500 MVA transformers; (ii) 30 units of 80 MVAr 765 kV shunt reactors;
and (iii) two 110 MVAr 765 kV shunt reactors. During the year, for the
765 kV category, PGCIL alone has given orders to CG Power India for 28
units of 500 MVA 765 kV power transformers, and 10 units of 80 MVAr 765
kV shunt reactors.
- The switchgear division of CG Power India successfully test charged
the first 1200 kV capacitive voltage transformer (CVT) for PGCIL at
Bina, Madhya Pradesh; and it successfully erected and tested the first
1200 kV surge arrester, also at Bina.
- Six 765 kV power transformers manufactured by PT-Hungary, CG''s power
transformer facility at Tapioszele, are now operational at different
- In less than a year, the distribution transformer business in the USA
won over 50% of the Solar market share in the country.
Similarly, notwithstanding more muted performance from your Company''s
two other strategic business units, Industrial Systems and Consumer
Products both on account of higher competition and rise in raw
material prices each has had significant successes.
For instance, Industrial Systems successfully produced several new
models of Large motors in its rotating machine Plants at Hungary and at
Mandideep for the Middle East, Russia, the UK, Egypt and India. It
produced best-in-class Synchronous Generators for France and Italy. And
its facility in Sweden developed and supplied a new series of drives
for the German market. CG Global R&D and traction team developed
IGBT-based auxiliary convertors, to be used in AC locomotives for
I urge you to read the chapter on Management Discussion and Analysis in
this Annual Report for greater details.
This brings me to my second question: Where do we go from here-
The solution is clear. Your Company has to rapidly leverage its global
synergies to offer top class Systems and solutions for its users. To
do this, it has to be ''One CG. Fast CG. Lean CG''.
I believe that there are significant opportunities out of being a
globally recognised and respected company catering to key emerging
economies and some key developed markets. These geographies are not
only witnessing rapid growth in the need for power Systems, industrial
Systems and consumer Products, but also demanding more complex
solutions. Your Company has considerable competitive advantage in
electro-mechanical Products, which enjoy strong demand across these
markets. When these are combined to create end-to-end solutions and
Systems, the offerings will be compelling and competitive.
In the power business, your Company is clearly getting there. Here are
some examples of success.
- Eon''s Humber Gateway wind-farm Project. You may recall that in 2010,
CG installed and commissioned its first off-shore sub-station Belwind,
a 165 MW wind-farm Located 50 km in the coastal waters of Belgium. In
FY2012, CG Power Solutions UK and CG Systems Belgium won the order to
set up the offshore and onshore sub-stations at the Humber estuary, off
the coast of Yorkshire in the UK. The offshore sub-station will connect
73 wind turbines of 3 MW each, or 219 MW in total, with power of 280
MVA. The Project is worth £46 Million. CG Products used in the Project
will be power transformers, reactors and distribution transformers,
132kV GIS switchgears, and automation and control Systems.
- There are other offshore wind-farm Projects as well, such as
Amrumbank West and Butendiek, on the German North Sea, and Northwind,
also in North Sea, off the Belgian coast. These Projects are not only
increasing CG''s ''Systems reputation'' but also creating a pull-through
for CG Products.
- CG''s renewables business generated global revenue of around 270
Million in FY2012, 61% of which was accounted for by Systems and
solutions. Your Company now has a very healthy and growing renewables
Project pipeline, comprising both wind and Solar.
- In FY2012, the Engineering Projects Division (EPD) of CG Power India
showed 102% growth in order intake and 61% growth in net Sales. It
successfully executed several key Projects, such as: (i) commissioning
a 765 kV /400 kV sub-station for the Uttar Pradesh Power Transmission
Corporation Limited at Unnao, in a record time of 14 months; (ii)
commissioning four sub-stations for PGCIL, each well ahead of schedule;
(iii) booking its first PGCIL order for a 765 kV / 400 kV sub-station
valued at Rs.145 crore. The division accounted for 18% of the total
order intake of CG Power India. This would have been inconceivable two
years earlier, and demonstrates the power of providing end-to-end
Systems and solutions across all businesses and geographies.
More needs to be done. Motors need to be integrated with variable speed
drives. We must rapidly expand our footprint in automation. We must
leverage R&D more than ever before.
All this requires us to completely eschew notions of geographic and
Plant-centric silos. Your Company has to be ''One CG'' which
leverages the right resources and the right skills to produce the best
possible product or solution for selling anywhere. The DNA of selling
must be one where the customers come first; not where the factory is.
Your Company has to be a ''Fast CG''. Businesses come from geographic
regions. Therefore, your Company has been restructured according to
six areas: South East Asia, India, Middle East and Africa, Europe and
Russia, North America and Latin America. Businesses come from different
sectors. Consequently, CG is also being organised along clearly defined
business verticals such as renewables, oil and gas and mining, both
within and across the SBUs. ''Fast CG'' requires your Company to react
very quickly to the business opportunities be these geographic or
sector-specific and allocate the task of execution to the team or
Plant that can best do it, and as quickly as it can.
''Lean CG'' requires global best practices in sourcing; outstanding
shop-floor capabilities and processes; significant increases in
manufacturing efficiency and throughput; plus substantial improvements
in key capacities, whether these be through new greenfield facilities or
Have we got there yet- The answer is ''No''. But I am convinced, along
with your Board of Directors and your Company''s senior management team,
that no effort will be spared to create a well oiled customer-
deLighting CG one that supplies solutions, Systems and Products in a
seamlessly unified manner across the globe. The change has already
begun. It will take some time but we will get there.
Why am I so hopeful- Because I have closely seen the sea changes that
have occurred within your Company even in the last decade when it
transformed from being a Largely India-oriented player to Indian
corporation with an international business. We now need to make the
full transition to being a global corporation, that is respected by its
customers and peers. I have witnessed what your Company''s employees are
capable of delivering. I have seen how they can collaborate and
innovate to produce successes. And I have seen their pride and hunger
for winning. So, I have little doubt that we will be able to
successfully execute ''One CG. Fast CG. Lean CG''.
While FY 2012 was a difficult year, the re- modelling has begun. Bear
with CG, because the platform for creating a global enterprise has
commenced. One that will make all of us prouder than ever before.
Thank you all for your support.