With Adani Power buying 100 percent stake in Avantha Group's Korba project for Rs 4,200 crore and Avantha Group all set to exit the power generation business, does it make sense for investors to buy Crompton Greaves on hopes of debt reduction? Crompton Greaves owns minority stake (23 percent) in Avantha Group.
Billionaire Gautam Thapar-owned Avantha Group has been trying to lower its debt by selling assets. Earlier, Avantha demerged the consumer goods business of Crompton Greaves. It sold its chemicals business to Aditya Birla Chemicals for Rs 133 crore.
Avantha Power may also be in serious talks with a Tata Power consortium for its Jhabua power plant, according to media reports, which is a 1,260 MW thermal capacity in Madhya Pradesh.
Both Mayuresh Joshi of Angel Broking and Ambraesh Baliga, a market expert, have been positive on the stock for sometime now.
Baliga believes the Crompton Greaves stock has been correcting sideways. He has been positive on the stock at Rs 120. After the stock ran up to around Rs 225-230, he had asked investors to book out to a certain extent. He feels it is time again to start buying the stock on the back of recent news flow. However, he is not too enthused by the value of the sale of the power business. He believes it to be rather cheap. Crompton Greaves has invested around Rs 225 crore in the power plant and it is difficult to say what CG will finally get after the power plant sale, he adds.
Joshi too says it is a little difficult to quantify the value by which the debt will come off after the sale of the power plant. He believes the consumer business of the company is what will drive the Crompton Greaves’ business ahead. Comparing Crompton to Havells, its closest competitor, Havells derives a valuation of 26-27 times FY16 estimates, says Joshi. Now assuming the same valuation for the consumer business of Crompton, stock should be priced on the consumer side at Rs 125-130. Power business is doing reasonably better, which may take EBIt margin higher.
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