See 10-12% growth in FY18; rev to touch Rs 7200 cr: Crompton

Crompton Greaves’ move to restructure its business has proved positive for the company with stock gaining six percent in trade on Monday. The demerged entity, minus the consumer business, will trade from Tuesday.In an interview to CNBC-TV18, Madhav Acharya, CFO of the company says that the record date for demerger is March 16. "All the shareholders who are on the books on March 16, will get one share of Crompton Greaves Consumer Electricals Limited for one share that they are holding for Crompton Greaves," he adds.Acharya further adds that the consumer business might be listed in April. Going forward, he expects a growth of 10-12 percent in FY18 with revenue touching Rs 7,200 crore. Strong order book as well as visible growth in industrial system business in last five-six months will aid growth, Acharya says. The company’s current order book for India stands at Rs 4,000 crore. Another positive for the company is that it will become completely debt-free in FY17, he adds. Dhirendra Tiwari, Head of Research at Antique Stock Broking has a buy call on the stock with a target price of Rs 223 per share. The company's consumer business is valued currently at Rs 125 a share. Tiwari says that one can buy it if the stock price lists below Rs 90 a share. Below is the transcript of Madhav Acharya’s interview with Latha Venkatesh, Reema Tendulkar, Varinder Bansal and Prakash Diwan on CNBC-TV18.Latha: First run us through the numbers. We are all working with that Rs 230 crore as your earnings figure for FY17. What would your sales expectations be for next year?A: In our call on March 8, we had mentioned a revenue of around Rs 6,500 crore and a profit after tax (PAT) of around Rs 325 crore. Based on the current market conditions, we believe that we should do better than that number.Latha: How much better do you think?A: Difficult to say today.Latha: If you can give us an ideas as to, further down, say Rs 6,500 crore, are you expecting even FY18 even better and more importantly, even for FY17, what kind of margins do you think you can do?A: If I look at the revenue profile, FY18, I should see a growth of at least 10-12 percent. So, I would see a revenue of around Rs 7,200 plus crore. And our earnings before interest, taxes, depreciation and amortisation (EBITDA) should now be between 8 and 9 percent.Reema: What gives you the confidence of a 10-12 percent growth because what we pick up from our channel checks is that the industry is shrinking, the order books are slow moving. Could you walk us through what the order book as well as the deal pipeline for the company is?A: We have two large set of businesses. One is the power systems business in India which is basically a concept of Make in India and export to the rest of the world. And second is the industrial systems business and we do see a significant traction in the industrial systems business in the last 5-6 months. Coming on the power systems business, it is a long lease time business, and we do have a significant order book which gives us the confidence for these kinds of numbers.Reema: What is the order book currently?A: For India alone, we have around Rs 4,000 crore of order book.Latha: Which one, power or Industrial systems?A: Both put together.Latha: This upgrading that you are indicating for FY17, in terms of revenues and earnings, does this stem from basically the industrial systems? What are the wellsprings of your confidence?A: As I said, the industrials business has shown significant growth momentum in the last six months and a good order book in the power systems business.Latha: So you could do better revenues and better margins?A: Yes, that is true.Reema: You gave us margins of 8-9 percent for FY18. For FY17, what would be the margin projections?A: Basically, it would be almost in the same range. And there will be no debt as far as Crompton Greaves is concerned.Varinder: I just wanted to check. In the company that will be listed today, I believe there will be an overseas business as well. I want to get a sense of what will happen to that overseas business in terms of the revenue trajectory and the margins going ahead, because I believe that still, that is making huge losses, the overseas business. Analysts are expecting that going ahead in FY18, that could make profit. Just help us to understand that particular pie of the business going ahead.A: Firstly, it is more like an initial public offering (IPO) for our company today. And now coming on to overseas business, we have already announced this divestment of our overseas power production systems business. We do expect the closure of the deal in 5-6 months time and based on the numbers that we have shared on the call earlier, we do believe that the overseas business will end up with a breakeven for this year.Varinder: This year mean FY16?A: FY17.Reema: Are you looking to monetise the automation business in Europe, ZIV?A: On the call, we had mentioned, Mr Thapar has also said that we are looking at monetising the ZIV business.Reema: And how soon? Have you already started work on monetising and what could be the nature of it?A: We have already started the work on monetising. We have hired the right investment bankers for the job. I will not be able to give you the value for the asset, but just to indicate that we had acquired the company for around 150 million euros.Varinder: So, the domestic business which will be listed today, there will be no debt, I assume?A: Yes, you are right. There will be no debt for FY17._PAGEBREAK_Latha: And when is that international deal fully getting closed?A: In 5-6 months time.Varinder: If I was a shareholder of Crompton Greaves until yesterday, will I be getting those shares of the consumer business and the domestic business today? So, if someone wants to sell those shares, will those shares be with the investor as of now?A: The record date of the company announced has been March 16, which means that all the shareholders who are on the books on March 16, will get one share of Crompton Greaves Consumer Electricals Limited for one share that they are holding for Crompton Greaves.Varinder: That is true, but I was also made to understand that today, there could be a bit of selling which could come from the people who want to be with consumer goods business and not be part of the domestic business.A: I am not sure why, because logically... (Interrupted)Latha: The point is, the question is if they want to, can they sell it today? What you are saying is they can sell it only tomorrow.A: Once the share comes into hand, the record date is tomorrow, then the consumer share will get allotted to them, then the consumer shares will be listed hopefully in April sometime, as the consumer company had indicated.Prakash: I wanted to check with you, this industrial equipment business, where exactly do you put yourself especially when you have this order flow from Power Grid which seems to be one of the biggest triggers for your order book? In terms of categories of equipment, where do you focus on that in particularly, this business?A: In the power systems business, we look at high voltage and ultra high voltage transformers, as well as we are looking at reactors and switch gears. So, we are basically a company in the ultra high voltage range and high value added products.Prakash: So, that means that you would be competing with the ABBs and the Siemens of the world and not the smaller ones that we have been traditionally seeing that as being a little bit of a drag. A: Crompton Greaves has always been competing with large players like ABB and Siemens.Varinder: But, the margins of 8-9 percent which you alluded are way less that ABB, Siemens or some other companies like Cummins and all. Why is there so much of difference in terms of margins – 8-9 percent? I think Cummins is around 16 percent, ABB, Siemens, I think even better. So, how much time will it take for your to grow those margins to those levels which is an industry parameter?A: We cannot compare Crompton Greaves with Cummins, both are very different businesses. We will have to specifically compare the product segments of Crompton Greaves and ABB or Siemens or some other company in this sector, and we do believe that with the action that we are taking and the initiatives we have already taken, we do believe there is a lot of upside to the margins. And once we see a little bit of improvement in the macro conditions, we should see better margins.Varinder: So, what is the huge upside you mentioned in the margins? Can it go to 15 percent going ahead in the next 2-3 years?A: In 2011, we had made 17 percent.Latha: but, now you told me 8-9 percent for FY18 right?A: That is correct.Reema: Just one question. On the ZIV business where you said you have started the monetisation process, can it get concluded in FY17? And secondly, when you do monetise it, will it at least be profitable compared to the 150 million euros that you have invested in it?A: The deal can get concluded in FY17. But I cannot talk about the valuation right now.