Reduce Crompton Greaves; target of Rs 147: KRChoksey

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Reduce Crompton Greaves; target of Rs 147: KRChoksey

KRChoksey is bearish on Crompton Greaves and has recommended reduce rating on the stock with a target of Rs 147 in its February 2, 2012 research report.

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KRChoksey is bearish on Crompton Greaves and has recommended reduce rating on the stock with a target of Rs 147 in its February 2, 2012 research report.

"Crompton Greaves (CG) registered strong net sales growth of 26.3% on a YoY basis as net sales increased to Rs 3,028 cr. Operating profit margins declined by 815 bps to 6.5% as CG closed a 50 mn Euro negligible margin order. Consequently, net profits decreased sharply by 66.9% to Rs 77.1 cr. Order backlog at the end of the Q3FY12 stands at Rs 8,183 cr, 0.7x TTM sales. For the quarter, CG registered strong order inflow worth 3,401 cr vs 2,052 cr in Q3FY11 on back of strong order flows in power systems segment."

"Net sales increased by 26.3% YoY to Rs 3,028 cr, led by power system segment. Power system segment increased by 33.3% to Rs. 2,068.9 cr and constituted 68% of sales as CG executed/closed long tailed international orders. Industrial segment also registered strong sales growth of 24.7% during the quarter. For Q3FY12, Operating margins declined sharply to 6.5%, a 815 bps YoY on account of sharp increase in raw material cost. Raw material cost as a % of sales increased by 777 bps. Raw material cost increased sharply as CG closed negligible margins orders. Management commented there are no such orders in the current orderbacklog. So such thin margins are unlikely to repeat. However, in current difficult market conditions management commented it would try to adhere to its EBIDTA margin guidance of 8% to 10%, (which they had earlier revised downwards in Q1Fy12 from ~13%). We believe margins going ahead still remain a concern."

"Order inflow for the quarter increased to 3,401 cr vs 2,052cr in Q3FY10 as company received good orders in power system segment worth Rs 2,939 cr vs Rs 1,615 cr in Q3FY10. Orders from from renewables sector (offshore Wind HVAC & solar orders) & PGCIL (7 nos of 765 Kv transformer order) supported growth in order flows. Industrial system orders increased by 6% to to Rs. 462 cr. For 9M FY12 orderflows stand at 7,368 cr vs Rs 6,353 cr in 9MFY11. Orderbacklog as of Q3FY12 stands at 8,183cr vs 7,017cr in Q3FY11. Crompton Greaves delivered results below our estimates. At CMP of Rs. 145 Crompton Greaves is trading at P/E of 20.2x its FY12 EPS and 11.8x its FY13E. Considering macro headwinds in power sector and intense competition in the areas CG operates, we assign a multiple of 12x its FY13 earnings and recommend REDUCE on the stock with a price target of Rs 147," says KRChoksey research report.   

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