Accumulate Crompton Greaves; target of Rs 120: PLilladher
Prabhudas Lilladher is bullish on Crompton Greaves and has recommended accumulate rating on the stock with a target of Rs 120 in its May 27, 2013 research report.
Prabhudas Lilladher`s research report on Crompton Greaves
"Crompton Greaves (CRG) reported consolidated profits of Rs247m for Q4FY13, lower than our and street estimates (PLe: Rs774m). International subsidiaries reported loss of Rs845m in Q4FY13, higher than our estimate of Rs450m. Higher-than-expected stabilization costs like quality improvement cost (high un tanking rate issue) and LDs led to losses in subsidiaries. The company incurred cost of Rs770m in the quarter related to stabilization cost (Rs3bn for FY13)."“CRG highlighted that stabilization cost was high in the quarter due to quality improvement related cost but most issues related to design and processes have been sorted and cost should trend downward significantly in the next two quarters. Belgium-related restructuring is completely over and most employees have parted in Q4FY13. Hence, full impact of savings in employee cost (~Rs200m/quarter) should be visible from Q1FY14. Operations in Hungary have stabilised faster-than-expected and the plant has already delivered 18 power transformers in Q4FY13 and also has been EBIT positive. Most of the incremental losses are from the Belgium and Canada plant which is expected to reduce (as benefits of restructuring and quality improvement exercise fortify and LDs reduces over the next two quarters). CRG also highlighted that various initiatives planned by the company like improved offering, global sourcing, manufacturing foot print and continuous improvement initiatives programmes have delivered cost saving/margin improvement of 225bps for FY13.” “Order book at the end of FY13 was Rs91.2bn, up 9 percent YoY. Consolidated order inflow for the quarter was Rs29bn (up 3 percent YoY and 32 percent QoQ). For FY13, order inflow was up 3 percent YoY. Order inflow in the power segment was flat YoY in FY13 to Rs83.9bn. The inflow in power segment was lower due to the fact that Bhopal factory was full and hence, CG was selective in bidding and order intake in subsidiaries was also lower due to restructuring. Industrial orders were up 20 percent YoY in FY13 driven bygood traction in energy efficient motors and successful scale of drives and railways business. CG expects a robust order intake in high value-added segments like UHV/EHV in Asia, Automation/smart grid in the power segment, Motors in EMEA market, Railway transportation and electronic drives in the industrial segment.” “The stock is trading at 12.4x FY14E earnings. 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. We have assumed break even EBIT level for international subsidiaries in FY14. We maintain ‘Accumulate’ on the stock,” says Prabhudas Lilladher 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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