Hold Crompton Greaves; target of Rs 77: Edelweiss

Edelweiss's research report on Crompton GreavesCrompton Greaves’ (CRG) Q1FY17 EBIDTA came in line led by sharp margin improvement, while PAT was below estimate due to significant dip in other income. Key highlights were: 1) consolidated power system sales catapulted 86% YoY on low base and pick up in domestic execution; 2) subsidiary EBIT margin at 44% was driven by unsustainable trading sale; 3) domestic industrial segment on strong footing with 10%/35% YoY sales/EBIDTA spurt led by robust surge in LT/HT motors; 4) while power systems orders grew a marginal 3.5%, industrial orders jumped 46% YoY led by uptick in railway orders. Despite a temporary resurgence in power systems performance in Q1 and strong intake in industrial segment, we see key product gaps in power portfolio as a growth challenge. Maintain ‘HOLD’ on limited upside.

We remain optimistic about CRG’s industrial growth given its favourable positioning in LT/HT motors. However, we believe, the company needs to focus on the power

equipment portfolio given that more than 25% of market opportunities are not catered to by them. Also, successful exit from ZIV and automation business remains a key. We assign18x PE to CRG’s FY18E earnings, in line with BSE S&P cap goods PE (25% discount historically). Maintain ‘HOLD/SP’ with revised TP of INR 77 (earlier – INR 65).

For all recommendations, click here 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.