Accumulating Crompton Greaves; target Rs 153: Angel Broking

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Accumulating Crompton Greaves; target Rs 153: Angel Broking

Angel Broking is bullish on Crompton Greaves (CG) and has recommended accumulating rating on the stock with a target price of Rs 153 in its October 20, 2011 research report.

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Angel Broking is bullish on Crompton Greaves (CG) and has recommended accumulating rating on the stock with a target price of Rs 153 in its October 20, 2011 research report.

"Crompton Greaves (CG) reported a weak performance for 2QFY2012, which was in-line with our estimates but significantly below street expectations. Although CG has posted decent numbers on the top-line front, the company's margin has dragged its earnings, as expected. Since we have downgraded the CG stock, it has fallen by ~26.5% and underperformed the BSE Sensex by ~24.3%. We believe CG is still facing headwinds on the business front and the outlook remains bleak for the entire FY2012. However, given the potential in the company, our estimates build in conservative assumptions and current undemanding valuations."

"Weakness continues: For 2QFY2012, the company's top line grew by 12.8% yoy to Rs 2,706cr (Rs 2,398cr) (marginally higher than our expectation of Rs 2,542cr) on account of the recent acquisition. EBITDA margin witnessed a steep contraction of ~560bp yoy to 8.4%, in-line with our estimate of 9.0%, primarily driven by high raw-material costs. PAT declined sharply by 45.4% to Rs 116.7cr, 20% below street expectations (Rs 144.0cr) and in-line with our expectations (Rs 115.8cr),"

"At the CMP of Rs 143, the stock is trading at 16.9x and 11.1x its FY2012E and FY2013E EPS, respectively. The stock is trading well below its historic average of 19.0x one-year forward earnings. 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, given its undemanding valuations. We have assigned a multiple of 12.0 to arrive at a target price of Rs 153, implying an upside of 7.7% from current levels," says Angel Broking research report.

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