Accumulate Crompton Greaves; tgt of Rs 152: Angel Broking

“Crompton Greaves (CG) reported a weak performance for 3QFY2012, which was significantly below our estimates and street expectations. Although CG has posted decent numbers on the top-line front, the company’s margin has dragged its earnings. We believe CG is still facing headwinds on the business front and the outlook remains bleak for near to medium term. We revise our FY2012 and FY2013 estimates to factor in slower than anticipated margin recovery and thereby downgrade the stock to Accumulate from Buy.”

“For 3QFY2012, CG’s top line grew by 26.3% yoy to Rs3,028cr (Rs2,397cr), which was 14.3% higher than our estimate of Rs2,649cr. EBITDA margin witnessed a steep contraction of ~820bp yoy to 6.0%, significantly below our/street estimates, primarily driven by high raw-material costs. Led by margin dip, the reported PAT plunged by 66.8% yoy to Rs77.2cr (Rs232.8cr), 42.0% below our (below street) expectations of Rs133.6cr.”

“Given the latent potential in the company (strong global T&D player with diversified product offerings), our build in conservative assumptions (9.6% EBITDAM for FY2013 much below the historical average of 12.0-13.0%) and current undemanding valuations (stock at 30% discount to its five year trading PE multiple), we maintain our positive stance on the company. The pessimism surrounding the company’s growth and profitability has clearly been factored in the stock price, given the PE multiple derating and underperformance of the stock. Thus, we believe from a long-term perspective, investors can start accumulating the stock. We have assigned a multiple of 14.0 to arrive at a target price of Rs152, implying an upside of 5.6% from current levels,” says Angel Broking research report.  

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