Accumulate Crompton Greaves; target of Rs 128: PLilladher

Prabhudas Lilladher is bullish on Crompton Greaves and has recommended accumulate rating on the stock with a target of Rs 128 in its March 25, 2013 research report.
 
“Crompton Greaves (CG) has seen tough last 7‐8 quarters due to issues relating to restructuring and global turmoil which impacted international operations. With restructuring behind us, efficiency‐led gains (Merlin project, improved manufacturing foot print at low‐cost location etc.) are expected to drive margin improvement and help improve focus on execution. We believe that a record backlog, better/leaner cost structure, good & increasing product basket and improved reach in terms of geography will drive earnings over the next few years. Given the inexpensive valuation and favourable risk reward, we upgrade the stock to .Accumulate. from .Reduce. with a revised PT of Rs128. 

“CG had a tough last 6-7 quarters as profitability was badly hit by restructuring cost relating to Merlin project (Belgium restructuring) and difficult global markets (leading to delays/deferments). Under restructuring, Belgium Operations were optimized for cost advantages and large part of manufacturing shifted to Hungary to take advantage of low-cost structure and younger work force in Hungary. The management expects savings in staff costs in Belgium due to restructuring at EUR3.5m in Q4 and ~EUR12-13m in FY14. We believe that once the restructuring is out of the way, it wills unlock more management band to focus on operational and margin improvement. We expect international operations to stabilise over the next few quarters and see a gradual improvement in margins as benefits of restructuring and other cost optimization (global sourcing, Supply chain improvement) kicks in. We have modelled breakeven in FY14E and profit of Rs 892mn in FY15E for international subsidiaries.”
 
“Order book at the end of Q3FY13 stood at Rs92.3bn (up 13 percent YoY). Order intake for 9MFY13 is up only 2 percent YoY largely because of high base on last year (received few big system orders in Q3FY12) and also due to deliberate strategy to restrict project orders as largely the strategy behind project orders is product pull (CRG's Power Transformer factories globally are running at near-full capacity). Increased reach in terms of geography and improved product basket has ensured growth across regions. On the year-to-date basis, growth has been evenly spread among all regions. America grew by 15 percent, Europe by 8 percent (despite the Merlin project and almost the freeze transformer activity for Q3FY13) and India by 3 percent. We wish to highlight that the management was able to deliver growth in order book despite management band being occupied with Merlin project. We expect order inflow CAGR of 12 percent in FY13-15E.”
 
“The stock is trading at 10.8x FY14E earnings. CRG had a tough last 7-8 quarters due to issues relating to restructuring and global turmoil which impacted international operations. With restructuring behind us, efficiency-led gains (Merlin project, improved manufacturing foot print at lowcost location etc) are expected to drive margin improvement and help improve focus on execution. We believe that a record backlog, better/leaner cost structure, good & increasing product basket and improved reach in terms of geography will drive earnings over the next few years, given the inexpensive valuation. We upgrade the stock to ‘Accumulate’ from ‘Reduce’, with a revised PT of Rs129 (Earlier Rs91),” says Prabhudas Lilladher research report.

Non-Institutions holding more than 90% in Indian cos

Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

To read the full report click on the attachment

Read More