Crompton Greaves Q1 results: What to expect

Crompton Greaves will declare its first quarter results today. In an interview to CNBC-TV18, Lokesh Garg, associate director at Kotak Institutional Equities speaks about his expectations from the company.

Below is the edited transcript of his interview with CNBC-TV18's Udayan Mukherjee and Mitali Mukherjee. Q: What are your expectations from Crompton today? A: Our expectation is about Rs 125 crore of profit after tax (PAT), on a consolidated basis, from the company. This is essentially predicated on stable domestic business and some improvement in overseas business coming through. Q: Do you expect any significant change in margins from that 7.5% kind of number last quarter? A: For the full year, we would expect about 8% EBITDA margin at consolidated level. I am hoping that they will be able to deliver considering that they did about 7% last year also, inspite of lots of one-off issues. Some of those one-off issues are partly alleviating. It is not that they are going away completely, but they are partly alleviating. Q: In today’s results, do you expect to see any significant uptick or improvement on the domestic power business or in the order intake in that space at all? A: No, I don’t expect significant uptick in the domestic power business. Some sense of improvement that we are building in originates from overseas for this year. I don’t see any big uptick in the order inflows for the domestic power segment. Recent data points from PGCIL (Power Grid Corporation of India Limited) did not reflect any big order in favour of the company. I think this would be a usual Rs 700-800 crore of order booking in the domestic power segment this quarter. Q: Since the last quarter, the company had taken to doing closed interactions with just a group of analysts. Do you take anything away from the last quarter and their interaction in terms of when they expect the cycle to turn, by which quarter you are going to see a meaningful improvement in performance? A: There are two parts to it. Some parts are internal, essentially related to companies own issues of not having appropriate configuration of manufacturing across the globe and things like that. That would be in their control, they have started to set right possibly. So that may be a two-year loss. The fact that cycle still remains weak in India and across the globe as well with competition still very pertinent. That is something which is not fully in the control of the company, apart from some cost response to that. Over the next one to one-and-a-half year, we expect to see some bit of improvement on internal dynamics. And then company gets prepared to leverage the benefit whenever the external dynamic starts to improve. At this point of time, the call is external dynamics haven’t started to improve. There is no data point to suggest that including the recent PGCIL tendering and ordering that we recently saw. There is still substantial market share going to foreign competitors. Pricing doesn’t seem to have improved in a meaningful way. So, external environment just about remains the same. It is the internal dynamics which is in control of the company. It should start to improve from this point onwards. That will actually be a long term process. It will be a process which will run one to one-and-a-half year, possibly two years as well. We would track the company in terms of progress against that. _PAGEBREAK_ Q: How did you read the news of that import duty on power equipment yesterday? Have you changed any kind of expectations for BHEL, L&T, and BGR? A: The fact that decision has come in the medium-term is positive. However, its near-term benefit, in my view, would be limited. Essentially there are two-three points. First of all, all the details are not yet out, but we expect that this will be only for projects which are conceptualised incrementally. This would not be applicable to existing projects, which have already got some certificates like mega power certificates. In that case, fresh conceptualisation of orders from private sector particularly may be sometime away. Private sector would wish to see stability on lots of these issues related to fuel, distribution, current projects under construction, not having enough visibility on whether they can build a viable business or not. So, it will take time for all of those issues to resolve. Only when these things have been stabilised would private sector start to conceptualise new projects. That is possibly atleast two years away. That is when the benefit of this duty would start to flow through in terms of incremental decisions. I singled out private sector because in public sector contracts, even though there will be tendering opportunities in next few years as well, but public sector contracts strictly have a mandatory domestic manufacturing clause already. That means that duty is not very pertinent to those contracts. Apart from both these points, there is tremendous amount of domestic competition that have got built up in the sector. That will remain there perpetually from this point onwards. So, to that extent, this will dilute the benefit that you will ultimately aim to see in companies like BHEL. So, to that extent, we haven’t changed our provision and call on any of these stocks on back of this news item.