Hold Crompton Greaves; target Rs 116: KRChoksey
KRChoksey has maintained hold rating on Crompton Greaves (CG) with a target price of Rs 116 in its November 5, 2012 research report.
November 06, 2012 / 13:36 IST
KRChoksey has maintained hold rating on Crompton Greaves (CG) with a target price of Rs 116 in its November 5, 2012 research report.
"Crompton Greaves (CG) net sales increased by 8.1% to Rs 2,924.2 cr. However, Operating profit margins declined by 369 bps to 4.7% below our expectation. Operational loss on account of restructuring at CG’s Belgium facility primarily contributed to the loss. Consequently Net profits declined by 64% to Rs 42.1 cr. For the quarter, CG registered order inflow worth Rs 2,575 cr on back of order flows in power systems segment worth Rs. 2,100 cr.Management lowered sales guidance to 8% - 10% vs 12 - 14% earlier and OPM guidance from 8%-9% to 5%. Company attributed restructuring of Belgium operation for the same, where it is downsizing 260 employees of ~790 employees. Current quarter sales and operating margins were impacted by the same. International power system revenues were almost flat at Rs 1158 cr and operating margins were impacted to the extent of Rs 80 cr (H1FY13 – Rs 130 cr) on account of operational loss. Orders from Belgium facility are being transferred to Hungary. Until the restructuring is over, operational loss would continue to impact margins. The process is expected to be completed by Dec 12. Hence Dec quarter would also have an operational loss. Post restructuring of Belgium operation company will also provide for additional one time liability wrt payment towards downsizing of employees. This liability would be shown as exceptional item (not included in revised guidance). Management refrained from commenting amount of the liability.Order inflows for the quarter increased by 14% YoY to Rs. 2,575 cr. Power system orders constituted major proportion (81%) of the order inflow and increased by 15% YoY. Industrial order intake was up by 10% YoY to Rs. 475 cr. Orders from India constituted Rs 1,244 cr (Rs 882cr – Power and Rs 362cr– Industrial) and international constituted Rs 1,331cr (Rs 1218cr - power and Rs 113cr – industrial). Consequently current order backlog stands at Rs. 9,400 cr (India – Rs 4,206cr and international - Rs 5,194 cr), which is 0.8x TTM sales.Our View & Valuation: Crompton Greaves reported results below our expectations. At CMP of Rs. 112, Crompton Greaves is trading at P/E of 23.7x its FY13 EPS and 11.6 x its FY14E. We had a REDUCE recommendation on the stock considering significant pricing pressure in the industry. However as stock has corrected significantly post results, we now recommend a HOLD on the stock with price target of Rs 116 (12x FY14EPS)," says KRChoksey research report.Public holding more than 90% in Indian cosDisclaimer: 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 
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