Crompton Greaves to relocate ops to low cost countries

This is in line with the management target to relocate its operations to low cost countries and to restructure its European operations in the next three years. This is primarily triggered by the over capacity in the pricing pressure that the company has been experiencing in its European power T&D space.

It seems that a part of the Belgium operation might be located to Hungary and Ireland where hourly compensation in Hungary, for instance, is about 84% lower than in Belgium and in Ireland its about 30% lower. So these are the low cost countries that they might be looking to relocate to.

Brokerages are estimating a one time impact of Rs 60-75 crore on the P&L as a result of these restructuring activities. However, they are estimating an EBITDA margin boost of about 60-100 bps by FY14 as a result of this restructuring. They are generally positive on this move because much of the near term impact has already been factored in.

Bank of America Merrill Lynch has maintained a buy on Crompton Greaves with a target price of Rs 151 as it sees this as the first step towards a 3-year target of restructuring European operations of the company.

RBS has a hold rating on Crompton Greaves with a target price of Rs 115. It feels that the restructuring of the Belgium operations could entail an estimated cost of euros 25-35 million. However, it also believes that the power T&D space has become a difficult business and as a result more issues might emerge before things start looking better for the company.

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