Buy Crompton Greaves; target of Rs 117: Angel Broking
Angel Broking is bullish on Crompton Greaves and has recommended buy rating on the stock with a target of Rs 117 in its May 28, 2013 research report.
Angel Broking`s research report on Crompton Greaves
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Crompton Greaves (CG) reported a disappointing performance for 4QFY2013, which was below our estimates and street expectations. Although top-line was in-line with our estimates, growing at 10.1 percent yoy to 3,387cr, profit was much below our estimates, declining by 75.4 percent yoy to Rs25cr, mainly on account of higher than expected loss in its international business.” “The company’s international business continues to be drag on its consolidated margins adversely impacted by quality issues, productivity loss (due to Belgium restructuring) and delay penalties (due to delay on account of transfer of power transformer projects from Belgium to Hungary plant). Further, tough competition in domestic market has even eroded CG’s standalone margins (328bp yoy contraction to 6.9 percent). Consequently consolidated margin stood at 2.3 percent, a contraction of 463bp yoy. The consolidated order intake for 4QFY2013 grew by tepid 3.0 percent yoy to Rs2,983cr. Although order intake in power segment remained flat yoy at Rs2,451cr, order intake in industrial segment grew by 20.3 percent yoy to Rs534cr. The order backlog stood at Rs9,126cr, increasing 9.1 percent yoy.”“Although the company is expected to register a moderate sales growth, supported by healthy order backlog, its operating margins are expected to remain under pressure for the next few quarters. On a positive note, the Management has indicated that all exceptional losses due to Belgium unit’s restructuring have been accounted for and the company is expected to save up to 14mn euros/year on account of the same. We are of the opinion that CG’s margins will bottom out in FY2013 and we expect the operating margin to gradually improve over the next 14 to 18 months. Given the attractive valuation (stock trading at 0.5x FY2014E EV/Sales compared to its five year trading range of 0.6x to 1.6x and median of 1.1x), we maintain our Buy recommendation on the stock with a long term view. We have assigned a multiple of 0.7x to arrive at a target price of Rs117,” says Angel Broking research report. 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. 
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