Accumulate Crompton Greaves; target of Rs 119: P Lilladher
Brokerage house Prabhudas Lilladher is bullish on Crompton Greaves and has recommended 'Accumulate' rating on the stock with a price target of Rs 119 in its research report dated November 19, 2013.
November 21, 2013 / 12:53 IST
Prabhudas Lilladher's report on Crompton Greaves
"Crompton Greaves, the management highlighted that the problem areas in international subsidiaries continues to be the Canada plant and USA project businesses. Both Canada/USA subsidiary put together have made a loss of Euro10m in H1FY14 and management expects the run-rate to continue in H2FY14 as well. Management is working on a plan to revive the Canada unit (options like restructuring, expansion, sell out etc.) and hopefully should come out with a plan by the year end. The problem in USA subsidiary is of low product pull in project businesses, CRG has stopped taking new orders till further course of action is decided. High cost incurred due to opening of marketing office in various parts of world over last few quarters has also impact margin to an extent. The management expects the other restructured subsidiaries like Belgium, Hungary and Indonesia to further improve profitability in H2FY14, driven by capacity addition and reducing backlog of legacy orders in Hungary and execution of high value and better margin orders in Belgium. CRG also does not see any major negative surprises coming from LDs and cost of most of the expected LDs has been provided for. CRG expects to be PAT positive in FY15 at the subsidiary level and deliver a 10-12 percent consolidated sales growth in FY15.""CRG has seen improved traction in export orders in the domestic power segment and expects to end the year with an inflow of ~Rs8.5-9bn in FY14 as against Rs7.5bn in FY13. The company continued to comment that pricing has stabilised in the domestic market. Within industrial segment, HT Motors continues to be the pain point, with significant delay in pick from customer impacting sales and margins. In the consumer segment, lighting and fan continues to grow at a fast pace. However, de-growth in pumps businesses due to the monsoon impact pulled down the overall growth of the consumer segment to 13 percent YoY in Q2FY14, below expected trend growth rate of ~20 percent. CRG believes its focus on increasing distribution reach will ensure ~20 percent growth in the consumer segment."Outlook and valuation: "The stock is trading at 11xFY15E earnings. Restructuring generally is difficult and uncertain macros in key markets like Europe, US, Middle East and India is making the journey bumpier for CRG. While the benefits of recovery are likely to improve earnings over the next few quarters, the pace will be gradual, in our view. Company's strong product portfolio, improved its geographical reach and better manufacturing footprint should help CRG deliver once the cycle turns. Healthy balance sheet and cash flow generation, even in the tough years, gives additional comfort. We maintain 'Accumulate' on the stock with a target price of Rs 119," 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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