Post Q2 nos, Angel Broking remains neutral on Crompton

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Post Q2 nos, Angel Broking remains neutral on Crompton

Crompton Greaves announced its second quarter FY 12 results. The Crompton Greaves numbers are in line with our expectations, said Shailesh Kanani, research analyst of Angel Broking to CNBC-TV18 in an interview. According to him, the main problem for the company is on the margin front. Angel Broking maintains a neutral rating on the stock.

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Excerpts from Closing Bell on CNBC-TV18 Watch the full show » ALSO READ News and Notices about Crompton Greave See interviews with Crompton Greave Management See what other Experts & Brokerages are saying about Crompton Greave See previous Results of Crompton Greave Crompton Greave BSE | NSE 31/05/12 Are Mutual Funds betting on Crompton Greave?

Crompton Greaves  announced its second quarter numbers, wherein the consolidated net profit came in Rs 116 crore, a whopping 45.5% fall from Q2FY11. Its consolidated net sales were up 13% at Rs 2,705 crore versus Rs 2,398 crore (YoY).

The Crompton Greaves numbers are in line with our expectations, said Shailesh Kanani, research analyst of Angel Broking to CNBC-TV18 in an interview. According to him, the main problem for the company is on the margin front. "The outlook remains bleak for segments in which Crompton does business," he added.

Last time, Kanani had factored in that FY12 would be bad with 30% degrowth. He also indicated that the company would see a gradual recovery in fiscal year 2013. "Due to the continuous interest rate hike and high inflationary pressure, we need to revise our number for FY13," he pointed out. Angel Broking maintains a neutral rating on the stock.

Here is the edited transcript of his interview. Also watch the accompanying video.

Q: What are your preliminary observations with Crompton's numbers, particularly on the bottomline? How much the stock needs to correct by or has it corrected adequately?

A: The numbers are pretty much in line because we anticipated below street expectations. The company did a bit better on the topline front as per our expectations. The problem seems on the margin front.

Last time, they guided that there were some problems on the margin front and they would face some pressures, which was seen in the results as well. The outlook remains bleak for segments in which Crompton does business.

Q: Did you get a chance to look at segment wise performance? Can you compare it on a quarter-on-quarter basis because last quarter power was the big disaster? How did it look this time around?

A: The problem is in the power and consumer segment. Last time, consumer segment had also faced pressures because of high inflation and rising interest rates. They had seen some slowdown there. This time, the scenario would be the same.

Q: What are you pencilling-in in terms of FY12 earnings? Going into FY13, how does the recovery process look? Last time, the management had said that the first and second quarter of this fiscal will be weak, but Q3 would have a steady improvement. Do you foresee that too?

A: Last time, we factored in that FY12 would be bad. We expected 30% degrowth in FY12. We expect gradual recovery in FY13, but due to the continuous interest rate hike and high inflationary pressures, we need to revise our number for FY13.

If the economy or industrial capex doesn't revive in next six-12 months, the company might post bad numbers for FY13 too. Right now, we are working with an EPS of around 15.3 for FY13.

On the valuation front, it is not expensive, but the scenario is not improving and there are chances that these numbers would get further downgraded. I would maintain neutral stance on the stock.