Nov 20, 2012, 12.10 PM | Source: Moneycontrol.com
Motilal Oswal is bullish on Crompton Greaves and has recommended buy rating on the stock with a target of Rs 131 in its November 16, 2012 research report.
Motilal Oswal (more)
“Crompton Greaves, power transformers capacity to be curtailed from 12,500MVA to 5,000MVA eventually. However, the actual production over the past few years was 8,000-8,500MVA and thus Phase I attempts to right-size the capacity and associated infrastructure; going forward, there is flexibility to further downsize to 5,000MVA. Apart from power transformers, Belgium facilities include distribution transformers, system business (for wind offshore), service revenues, repairs facility (transformers) and the global headquarters with functions like warehousing, logistics, purchases, marketing etc. Hence, the restructuring shall ensure that the revenue potential from Belgium would not decline meaningfully from ~INR20b levels in FY12, as the attempt initially is to right-size capacity in power transformers, and also rationalize the business functions.”
“Consumer business' contribution to standalone EBIT improved from 25% in 1QFY11 to 35% currently, and the management stated that the key growth drivers are: lighting and fans. Boston Consulting Group has been engaged to suggest the rejuvenation plan and the key elements are: i) capacity expansion (Vadodara for lighting products, etc), ii) channel management program is being carried out and the target is to increase the penetration, for example in fans, from 40% to 60-70% which will drive a meaningful increase in market share, iii) Chinese sourcing footprint being established and iv) appliances strategy is being reworked as, excluding geysers, CG's presence continues to be limited. In our view, the stock's performance would largely be driven by an improvement in overseas business, though standalone performance would protect downsides. We maintain Buy, with a target price of INR131,” says Motilal Oswal research report.
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