COMPANY UPDATE CROMPTON GREAVES - Myirisbreport.myiris.com/ES1/CROGREAV_20130715.pdf · CROMPTON GREAVES Back to basics: Mapping the growth path EDELWEISS4D RATINGS Absolute Rating

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Crompton Greaves’ (CG) FY13 annual report highlights management’s stress on stability of overseas power transformers plants. The company continues to expand its power transformer portfolio with expansion in Middle East, Hungary and Mandideep (Bhopal). With commencement of production of large rotating machines and AC drives at the new Mandideep plant, CG plans to localise Ganz’s and Emotron’s industrial portfolio. However, management outlook is cautious given industry challenges like over‐capacity and pricing pressure in key markets. It expects recovery only in the medium term (1‐2 years). Maintain ‘HOLD’ with a target price of INR102.

Pauwels, Ganz earn PAT of INR3.7bn since acquisition

CG had acquired Pauwels and Ganz in FY06 and FY07 for INR2.0bn and INR1.8bn,

respectively. Since acquisition, while Pauwels has earned a net profit of INR3.6bn, Ganz

earned INR0.1bn till FY13.

Working capital declines; operating cash flow maintained

The company’s net working capital (consolidated) declined by INR2.5bn in FY13 led by

increase in creditors. Its operating cash flow remained healthy at INR2.3bn. On

standalone basis, CG’s operating cash flow dipped from INR3.9bn in FY11 to INR1.8bn

in FY13, primarily on account of higher working capital requirement led by increase in

loans and advances to subsidiaries of INR5bn (FY12: ~INR1bn). We believe loans and

advances increased post acquisition of ZIV in FY13.

Outlook and valuations: Cautious; maintain ‘HOLD’

Management is confident that its operational improvement strategy will pay rich

dividends. Stabilisation of the Hungary plant has given it the necessary boost to

replicate the success at Canadian and US plants. However, we retain our view that CG’s

ability to turn PAT positive in Belgium, Canada, Hungary and US plants is limited given

the sustained industry weakness (demand, pricing pressures). We maintain ‘HOLD/SP’

with a target price of INR102 (valued at 12.0x based on FY15E EPS). The stock

(consolidated) trades at P/E of 13.7x and 10.3x FY14E and FY15E EPS, respectively.

COMPANY UPDATE

CROMPTON GREAVESBack to basics: Mapping the growth path

EDELWEISS 4D RATINGS

Absolute Rating HOLD

Rating Relative to Sector Performer

Risk Rating Relative to Sector Medium

Sector Relative to Market Underweight

MARKET DATA (R: CROM.BO, B: CRG IN)

CMP : INR 89

Target Price : INR 102

52‐week range (INR) : 144 / 72

Share in issue (mn) : 641.5

M cap (INR bn/USD mn) : 57/ 939

Avg. Daily Vol.BSE/NSE(‘000) : 2,791.2 SHARE HOLDING PATTERN (%)

Current Q4FY13 Q3FY13

Promoters *

41.7 41.7 41.7

MF's, FI's & BK’s 24.2 23.7 21.8

FII's 14.9 15.2 17.9

Others 19.2 19.4 18.6

* Promoters pledged shares (% of share in issue)

: 1.4

PRICE PERFORMANCE (%)

Stock Nifty

EW Capital Goods Index

1 month 0.8 2.5 6.0

3 months (0.7) 6.1 (1.6)

12 months (32.8) 11.9 (3.9)

Amit Mahawar +91 22 4040 7451

[email protected]

Rahul Gajare +91 22 4063 5561

[email protected]

Swarnim Maheshwari +91 22 4040 7418

[email protected]

India Equity Research| Engineering and Capital Goods

July 15, 2013

Financials (consol)

Year to March FY12 FY13 FY14E FY15E

Revenues (INR mn) 112,486 120,944 131,671 146,607

Rev. growth (%) 12.4 7.5 8.9 11.3

EBITDA (INR mn) 8,037 3,832 7,640 9,638

Net profit (INR mn) 3,736 846 4,157 5,530

EPS (INR) 5.8 1.3 6.5 8.6

EPS growth (%) (61.5) (77.4) 391.5 33.0

P/E (x) 15.3 67.5 13.7 10.3

ROAE (%) 10.9 2.4 11.4 14.3

Engineering and Capital Goods

2 Edelweiss Securities Limited

Eye on future: Management strategy

Efforts to bear fruits in medium term; challenges in FY14

Management’s initiatives to achieve plant level stability of its power equipment business

(especially power transformers, which contributes 40% to total power revenue) are

expected to bear fruit from FY15.

The next challenge for CG will be to optimise power systems automation (ZIV’s business)

and industrial portfolio (Emotron and QEI) on a global scale. This will help secure end‐to‐end

power systems and solution projects, thus helping the company improve product‐pull

thorough.

However, management expects FY14 to remain challenging given the sustained industry

challenges like over‐capacity and pricing.

Factors leading to subdued overseas performance in FY13

Pricing pressure in global T&D market, especially in US, Europe and high growth

markets like Middle East, North Africa, with suppliers cutting prices to maintain factory

level utilisation.

CG had booked most orders in FY12 and H1FY13 when raw material prices were high.

Hence, it could not benefit from the softening of prices in H2FY13.

Customer delay in taking physical delivery of transformers and sub‐station equipment

blocked scarce factory space, impacting revenue recognition, working capital and

thereby RoCE.

CG’s internal operational factors (like de‐tanking etc) impacted delivery schedules,

leading to liquidated damages (LDs) from customers. Also, the company faced issues

while transferring projects from Belgium to Hungary in H2FY13, which impacted

production.

Globalisation programme

Productivity improvement: Right designing, correct slotting of transformers in product

lines and faster throughput is expected to strengthen overall manufacturing process.

The company is gaining traction in Indonesia, US and Hungary; however, management

believes it will be some time before all plants become fully operational.

Global raw material sourcing and supply chain. The company has already started a

procurement office in China which should help the company rationalize its raw material

cost.

Increase capacity at Hungary to service Europe and Middle East: The company

successfully expanded its Tapioszele power transformers plant from 7,500MVA to

10,000MVA in FY13 and expects to achieve 12,500MVA by FY14E.

Maximise product pull‐through and improve project execution.

Crompton Greaves


Financial Analysis (Standalone)

Increased working capital requirements dent operating cash flow

CG’s operating cash flow dipped from INR3.9bn in FY11 to INR1.8bn in FY13, primarily on

account of higher working capital requirement led by increase in loans and advances to

subsidiaries of INR5bn (FY12: ~INR1bn). Excluding loans and advances, working capital

remained stable.

We believe loans and advances to subsidiaries surged post acquisition of ZIV in FY13.

As a result of declining cash flow, CG’s free cash flow also dipped from INR5.5bn in FY12 to

INR0.01bn in FY13. The cash conversion cycle remained negative due to stable debtor days

at ~90.

Chart 1: OCF and cash conversion cycle trend

Source: Company, Edelweiss research

RoCE continues to decline

CG’s RoCE declined from 25.1% in FY12 to 18.0% in FY13. The dip was due to 280bps margin

plunge in FY13 to 8.3% and increase in working capital.

Margins have declined in all segments, viz., power systems, consumer products and

industrial systems, of which power systems reported a significant margin plunge of 310bps.

Consumer products and industrial systems reported margin fall of 160bps and 60bps,

respectively, in FY13.

While consumer margins were impacted by high input cost and higher SG&A, industrial

margin was hit by pricing pressure and subdued volumes. The company locked material cost

structures at higher prices when the order booking was more, due to which margins

declined, apart from tough macro conditions in the power systems division.

(71)

(57)

(43)

(29)

(15)

(1)

1,449

3,274

5,099

6,924

8,749

10,574

FY08 FY09 FY10 FY11 FY12 FY13

(days)

(INR mn)

OCF (LHS) Cash conversion cycle (RHS)

Standlone cash flow dipped by INR 2.1bn due to increase in loans and advances post ZIV acquisition.

ROCE’s declined by 710bps (at 18%) in FY13 mainly due to margins decline across segments.



Chart 2: RoCE on a declining spree


Financial Analysis (Consolidated)

Working capital declines; healthy operating cash flow maintained

Our analysis of CG’s working capital indicates an anomaly in change in working capital given

in the cash flow statement and the analysis of net working capital in the balance sheet.

While the cash flow statement suggests an improvement of INR2.5bn in working capital,

balance sheet analysis suggests an improvement of INR0.2bn only. Despite considering

working capital improvement of INR0.2bn, the operating cash flow remained healthy at

INR2.2bn.

Free cash flow declined from INR3.68bn in FY12 to INR2.27bn in FY13 on account of increase

in capex which was incurred towards the Mandideep plant.

Chart 3: OCF and cash conversion cycle trend


0.0

12.0

24.0

36.0

48.0

60.0


(%)

ROCE's

(60)

(30)

0

30

60

90

1,500

3,350

5,200

7,050

8,900

10,750


(days)

(INR mn)

OCF (LHS) Cash conversion cycle (RHS)

Consolidated cash flow remained healthy despite anomaly in change in working capital.

Crompton Greaves


Turbulence at overseas plants leads to sharp RoCE plunge

CG’s RoCE declined from 13% in FY12 to 3.6% in FY13. The fall was due to 390bps plunge in

EBITDA margin in FY13 to 3.2%.

While the domestic power systems business continued to deteriorate, EBIT margins of the

overseas division also declined substantially — from 7.5% in FY12 to 0.8% in FY13.(EBIT loss

of INR3.4bn in FY13) .

The abysmal overseas performance was due to operational instability at Belgium and

Canada plants, which coupled with restructuring at the Belgium power transfer plant (cost

of INR2.3bn) impacted FY13 profitability and hence the RoCE.

Debt jumps two folds on ZIV acquisition

CG’s debt surged ~100% from INR9.8bn in FY12 to INR19.9bn in FY13 primarily to finance

the ZIV acquisition. The company, during FY13, acquired the Spanish company for

EUR147mn (~INR9.5bn). As a result of the increase in debt, CG’s interest expense also rose

from INR567mn in FY12 to INR955mn in FY13.

Chart 4: Debt catapults two folds


0.0

5.0

10.0

15.0

20.0

25.0


(INRbn)

Consolidated Debt

Consolidated RoCE continued its downward trend primarily due to standalone power systems business and operating instability at Belgium and Canada plants which significantly compressed margin



Domestic business Power systems: Revenue flat; profitability under pressure CG reported flat revenue growth in its power systems (India) business given tough business

environment, weak exports and customer‐led delays in picking deliveries.

While the company’s power transformer plant at Kanjurmarg (T1) delivered 181

transformers and 79 reactors in FY13, its Mandideep (T3) plant has delivered 108

transformers since September FY11. Most dispatches from the T3 plant were in the high

technology 765kV category. This plant has been earning an EBIT margin in excess of 10%.

The power systems’ margin continued to slide, which came off ~310bps YoY to 8.5% in FY13.

The fall can be attributed to rising proportion of systems business where margins are less,

intense competition in the transformer market and high raw material costs. The company’s

order book declined 3% YoY to INR33bn. Power system’s RoCE plunged 860bps YoY to 29.5%

due to lower sales and pricing pressure.

Outlook for FY14: Management expects profitability to improve in FY14 on account of

commodity price hedging and supply chain efficiencies.

.

Chart 5: RoCE trend: Compression continues Chart 6: Transformer revenue growth declines


23.0

40.8

58.6

76.4

94.2

112.0

FY09 FY10 FY11 FY12 FY13

(%)

Power Systems (India)

6.0

9.4

12.8

16.2

19.6

23.0

(1.0)

6.2

13.4

20.6

27.8

35.0


(%)

(%)

Rev . Growth (YoY)

Transformers rev growth (%)

EBIT margins (RHS)

Domestic power systems’ margin continued to slide due to rising proportion of systems business where margins are less, intense competition in the transformer market and high raw material costs.

Crompton Greaves


Chart 7: Price trend of major input cost


Chart 8: Market share of top 5 players in PGCIL ordering in past five years


Industrial systems: Thrust on globalising manufacturing capability CG, during FY13, commissioned and started production of large motors and synchronous

generators (Ganz platform) at its new manufacturing facility at Mandideep. This plant has a

capacity to produce 250 large motors and synchronous generators on an annual basis. It is

dedicated to the exports market.

On the financial side, revenue growth remained subdued with margin declining 60bps YoY

due to higher material cost, particularly in H1FY13, and pricing pressure. Order book grew

12.5% YoY to INR6bn. The company has launched several products in alternators, motors

and convertors which are expected to yield positive results in FY14. Industrial system’s RoCE

declined 200bps YoY to 54.4% in FY13.

0.0

90.0

180.0

270.0

360.0

450.0

25,000

30,000

35,000

40,000

45,000

50,000

FY08

FY09

FY10

FY11

FY12

FY13

(INR '000/tonnne)

(INR /tonne)

IndIan HRC prices (Landed) ‐ LHS Copper prices (in INR) ‐RHS

44.3 32.4

19.8 11.7 9.0

10.9

12.5

3.4 3.1

23.6

45.5

19.2 46.1 55.7

12.1

17.8

18.2 8.5

9.1 22.2

30.7 20.6 23.7

0.0

22.0

44.0

66.0

88.0

110.0


(%)

Crompton Siemens Chinese Areva T&D Others

Chinese/Koreans have dominated the Indian transformers market in the past 4‐5 years. More than 40% of total PGCIL orders (FY09‐13) were won by Chinese/Koreans.

The company has launched several products in alternators, motors and convertors which are expected to yield positive results in FY14.



Chart 9: RoCE stabilising at lower level Chart 10: Motors and drives’ revenue growth declines

Source: Company, Company, Edelweiss research

Consumer products: Regaining focus; leadership maintained Though revenue grew at a healthy 21.5%, margin fell 160bps in FY13 primarily due to high

commodity prices and INR depreciation. The company, during the year, has significantly

improved its service capabilities by establishing more than 400 exclusive authorised service

centers. All the regions in India have registered more than 20% growth, with North being

the highest at 24%.

Chart 11: RoCE trend—on a decline Chart 12: Revenue growth in electric fans spurts


Fans: Revenue grew 22% YoY against industry growth of 15%, translating into revenue of

more than INR10bn. The company has been able to maintain its leadership position in the

fans market. It posted double digit EBITDA margin in the division. CG also maintained

negative capital employed through controls on debtors and inventory. In‐house production

increased 26% YoY during FY13. The company launched 50 new products in the fans division

which accounted for over a third of the division’s sales.

23.0

48.0

73.0

98.0

123.0

148.0


(%)

Industrial Systems (India)

0.0

100.0

200.0

300.0

400.0

500.0


(%)

Consumer Products

10.0

13.0

16.0

19.0

22.0

25.0

(5.0)

2.0

9.0

16.0

23.0

30.0


(%)

(%)

Rev . Growth (YoY)

Motors & drives rev growth (%)

EBIT margins (RHS)

0.0

5.0

10.0

15.0

20.0

25.0

0.0

12.0

24.0

36.0

48.0

60.0


(%)

(%)

Rev . Growth (YoY)

Electric fans rev growth (%)

EBIT margins (RHS)

Crompton Greaves


Lighting: This division grew 13% against industry growth rate of 11%. CG enjoys third

position in the Indian market with leadership in public lighting, industrial lighting and flood

lighting. CFL, indoor commercial lighting and high mast grew 26%, 30% and 42%,

respectively, against industry growth of 18%, 22% and 15%, respectively, in FY13. The

company acquired CFL business of Karma Industries at Baddi for INR145mn, which will

double the company’s CFL capacity. CG has also entered into technology licensing

agreement with Bridgelux (USA) for rapidly growing LED‐based lighting.

Pumps: Pumps division surged 17% against industry’s 6% growth. CG retained the No.2

position in this business with leadership position (27% market share) in the domestic pump

business.

Appliances: The appliances division surged 75% on a small base with significant presence in

the geysers market. CG is planning to grow this business via introduction and marketing of

large number of new and more innovative products.



International business

Overseas power systems performance Pauwels Led by growth in US, Ireland and Indonesia, Pauwels’ revenue grew 6% YoY despite a

capacity shift to Hungary during FY13. This was despite 16% YoY drop in Canada (led by

plant level issues).

Belgium, Canada and US from the Pauwels portfolio were the major loss making plants

during the year. Management expects these plants to break even at the EBIT level by FY14.

Chart 13: Pauwels—Revenue and profitability trend


Led by strong pick up in execution of power transformers at Hungary (especially in H2FY13),

Ganz posted an impressive 27% YoY sales growth during FY13.

While the Hungary power transformers plant for Ganz remained loss making in FY13, there

was a strong pick up in execution and profitability during Q4FY13 with 7% EBIT margin.

Management expects to sustain this performance during FY14.

Ganz Management confident of EBIT breakeven in FY14: CG remains confident of attaining

operational stability in all plants by FY14 end led by encouraging results at Hungary during

Q4FY13 and in Belgium during Q1FY14. Management is currently focusing on execution

stability at three power transformer plants which includes Canada and US.

0.6

1.7 1.8 1.3

2.0

(0.4)

(3.4)

(5.4)

(3.6)

(1.8)

0.0

1.8

3.6

(50.0)

0.0

50.0

100.0

150.0

200.0

FY07 FY08 FY09 FY10 FY11 FY12 FY13

(INR bn)

(%)

PAT (RHS) Rev. growt (LHS)

Crompton Greaves


Chart 14: Ganz— Revenue and profitability trend


ZIV Deterioration in ZIV’s performance post acquisition; CG confident of recovery

CG acquired ZIV in FY13 for an EV of EUR147mn, funded via 50:50 debt‐eqiuty ratio to

complete its power system automation (control and relay panels, metering) portfolio.

However, there was a sharp drop in ZIV’s profitability immediately post acquisition with

FY13 (8 months’ period) revenue and PAT at INR3.4bn and INR(0.2)bn led by significant

slowdown in key markets like Spain.

While most business segments like application technology and grid automation posted

losses, metering business (37% of ZIV sales) remained profitable with PAT of INR60mn (9.3%

PBT and 4.5% PAT margin).

Management expects ZIV’s performance to improve in FY14 led by integration with various

CG products (power + industrial).

Table 1: ZIV—Performance for 8 months (August‐March FY13)


Emotron and QEI On a strong footing

While Emotron’s revenue surged a robust 52%, PAT jumped 60% YoY in FY13 led by strong

traction in AC drives and variable frequency drives (VFDs). PAT margin improved by 40bps

YoY to 8.2% in FY13.

219.0

(466.0)

303.8

525.7

829.1

(657.2) (642.1) (800)

(400)

0

400

800

1,200

(27.0)

0.0

27.0

54.0

81.0

108.0

FY07 FY08 FY09 FY10 FY11 FY12 FY13

(INR mn)

(%)

PAT (RHS) Rev. growt (LHS)

Particulars (INR mn) FY13

Revenue 3,470.0

PAT 57.3



Table 2: Emotron—Robust growth


QEI reported 29% sales growth led by healthy traction in SCADA, RTU (remote terminal

units). However, PAT was lower at 20% YoY led by margin pressure.

Particulars (INR mn) FY12 FY13 % change

Revenue 1,930 2,930 51.8

PAT 150 240 60.0

Crompton Greaves


Annexure I Table 1: Major orders received by CG entities

Table 2: Notable launches in FY13


FY13 FY12

PT transformers PT transformers

1) 13x42MVaA tranformers for Hydro One ( Canada) 1) Solar order from First solar, USA

2) 2x300MVA auto transformer for Saskatchewan Power

(Canada)

2) HVDC Transformer from Manitoba Hydro (Canada)

3) 3x85MVa GSU transformers for Coast Mountain Hydro

(Canada)

3) Generator step up transformer (GSU) from Ontario Power

(Canada)

4) 75MVA transformer from Global foundries (USA) 4) Power transfromer fromSNC Lavalin (Canada)

5)2x 83MVA transformer from WE Energies & Concord

Municipal(USA)

5) 12x167MVA transformer from PLN (Indonesia)

6) Enercon frame contract

DT transformers DT transformers

1) Enercon frame contract (Belgium) 1) Enercon frame contract (Belgium)

2) Siemens Wind Power contract (Belgium) 2) Contract from Alstom Wind

3) ELIA contract (Belgium) 3) 7 year global frame contract for generator transformer from

20MVA to 320MVA

4) Contract from Eaton (USA)

5) Contract from Siemens (USA)

Power Systems & Solutions Power Systems & Solutions

1) 275kV substation on EPC basis(Indonesia) 1) Eon's Humber Gateway Wind farm project (UK)

2) 4 turnkey GIS substations , Iraq 2) Northwind Wind farm project (Belgium)

3) HV transformers, Libya 3) WPD Butendiek (Germany)

4) Turnkey substation , Ghana 4) EON Amrubank (Germany)

5) 400/220/132 kV substations from PGCIL (India) 5) 132 kV and 220 kV control panels

6) 400kV extension packages from PGCIL (India)

7) 220kV GI substation turnkey project from HVPN and PTC

(India)

8) 200/132kV EHV turnkey substation from MPPTC (India)

Power System Industrial System Consumer Product

1) Developed & delivered 1200kV

transformer

1) Brushless alternators for mini hydro

project1) 50 new products/variants in Fans

2) Developed & tested 500kV single phase

shunt reactor & auto transformer

2) Large rotating machines(3MW, 2pole

MV motors)2) Premium range of celing fan ' Avancer'

3) 400kV gas circuit breaker 3) Developed 3x130KVA auxil iary

convertor for 6000HP locomotive 3) New series of submersible pumps

4) Hazardous area certified transformers

for oil & gas industry4) Apex series of LV motors upto 250kW

4) New launched l ike Mini Samudra and

Mini Ganga range in domestic pump

5) 20MVA & 30MVA mobile transformer 5) MV motors up to 12MW

6) Synchonous generators up to 25MVA



Table 3: Acquisition chronicle of major companies with profitability till FY13 (INR mn)


Year Target Company Deal Value Description Rationale behind acquisitionProfitability

till FY13

May‐05 Pauwels EUR 32.1mn Pauwels is a leading player in the world in

the SLIM transformers business with

faci l ities in Belgium, Ireland, Canada, the US

and Indonesia .

Exposure to new products (SLIM

transformers) & key markets in the

renewal space

3,610

Oct‐06 Ganz EUR 35mn Manufacture of higher voltage power

transformers (mainly EHV) and design and

implementation of power T&D projects

Strengthens CRG's abil ity to compete

in higher voltage power transformers

110

Mar‐10 Power

technology

Solutions

GBP 30mn PTS is a high voltage electrical engineering

company providing consultancy, technical

and engineering support to regional

electricity companies (RECs)

This acquisition will enable the

company to become a significant EPM

player in the UK

790

May‐11 Emotron Group EUR 57.8 mn Emotron is a power electronics and

engineering company, engaged in the

manufacture of variable speed drives, soft

starters, shaft power monitors, customised

products and providing project solutions

It will enable CRG to become a major

force to reckon with in the global

VFD/Industrial motors market. It also

enables it to offer integrated solutions

along with its application knowedge

of motors in India

382

May‐11 QEI Inc. USD 30mn QEI is a market‐leading provider of SCADA

and automation systems, and products for

the management of electric transmission

and distribution networks

CRG further fortifies its position in the

SCADA and sub station automation

domain. Some areas of

complementarities include data

acquisition, renewable SCADA, transit,

sub station automation

329

Jul‐12 ZIV Group EUR 150mn ZIV is a provider of digital equipment for

Grid Automation and Advanced Metering

Infrastructure (AMI).

CG’s biggest gap was in relays and

control panels. The ZIV acquisition

will address this gap and help the

company can make significant

presence in the systems business in

key global markets

57

Crompton Greaves


Company Description

Mumbai‐based CRG, a part of the B. M. Thapar Group, is a pioneer in the management and

application of electrical energy. It is primarily engaged in designing, manufacturing, and

marketing high‐technology electrical products and services related to power generation,

transmission, distribution, and executing turnkey projects. The company’s business

comprises three segments viz. power systems, industrial systems, and consumer products.

Nearly, two‐thirds of its turnover comes from power segment, in which, it enjoys leadership.

Investment Theme

CRGs diversified revenue base across power systems, industrial systems & consumer

product exposes it to three different markets, where consumer & industrial systems provide

strong cash flow support to the company. Increased T&D spend in India in the hi end T&D

space leaves open huge opportunities for the company, with PGCIL targeting to spend more

than INR 750 bn in the 12th five year plan.

Also, CRG targets to enter substation business graduation from a pure product company to

complete T&D EPC entity, and has planned expansion (both organic and inorganic) strategy

for the same. The company is also targeting to acquire industrial automation entities to

bridge its product gaps in the existing industrial systems business through leveraging its

strong balance sheet.

Key Risks

Execution slowdown in Europe & Power system India market could impact our revenue

assumptions. Major slowdown in the T&D spending in key markets like India & Europe can

potentially impact our growth assumptions.



Financial Statements (Consolidated)

Income statement (INR mn)


Income from operations 112,486 120,944 131,671 146,607

Direct costs 76,850 83,461 90,876 100,377

Employee costs 14,662 17,405 17,702 18,690

Other Expenses 12,937 16,247 15,452 17,902

Total operating expenses 104,449 117,113 124,030 136,968

EBITDA 8,037 3,832 7,640 9,638

Depreciation and amortisation 2,600 2,029 2,142 2,248

EBIT 5,437 1,802 5,498 7,390

Other income 628 1,000 906 916

Interest expenses 567 955 828 888

Profit before tax 5,498 1,848 5,575 7,417

Provision for tax 1,821 1,009 1,450 1,929

Net profit 3,676 839 4,126 5,489

Extraordinary income/ (loss) ‐ (1,207) ‐ ‐

Profit After Tax 3,676 (369) 4,126 5,489

Minority interest (7) (11) 12 16

Share in profit of associates 53 (4) 44 58

Profit after minority interest 3,736 (361) 4,157 5,530

Adjusted PAT 3,736 846 4,157 5,530

Shares outstanding (mn) 642 642 642 642

Diluted EPS (INR) 5.8 1.3 6.5 8.6

Dividend per share (INR) 1.6 1.2 2.0 3.0

Common size metrics


EBITDA margins 7.1 3.2 5.8 6.6

EBIT margins 4.8 1.5 4.2 5.0

Net profit margins 3.3 0.7 3.1 3.7

Growth ratios (%)


Revenues 12.4 7.5 8.9 11.3

EBITDA (40.2) (52.3) 99.4 26.1

Net profit (61.5) (77.4) 391.5 33.0

Key Assumptions


Macro

GDP(Y‐o‐Y %) 6.2 5.0 6.0 7.0

Inflation (Avg) 8.9 7.4 5.2 6.0

Repo rate (exit rate) 8.5 7.5 6.8 6.0

USD/INR (Avg) 48.0 54.5 58.0 56.0

Company

Revenue growth (%)

A) Power system ‐Domestic 7.6 (0.8) 6.2 10.5

B) Power system ‐Overseas 12.6 3.7 7.6 9.4

C)Consumer product 5.6 21.5 14.0 15.0

D) Indus. System 8.1 (1.4) 6.0 8.0

Order inflow growth (%)

A) Power system 34.9 ‐ 8.0 8.0

B) Power system 11.5 9.5 10.0 8.0

C)Indus. System 13.3 (6.9) 10.0 15.0

Depreciation 4.7 4.5 4.1 4.1

Tax rate (%) 33.1 157.6 26.0 26.0

Total no. of employees 5,857 6,150 6,458 6,781

Employee cost per head(INR mn) 588,477 659,094 725,004 797,504

Net borrowings (INR mn) 5,145 10,112 1,500 1,500

Capex (INR mn) 455 2,164 2,400 2,150


Crompton Greaves

Peer comparison valuation

Market cap Diluted PE (X) Price/BV (X) ROAE (%)

Name (USD mn) FY14E FY15E FY14E FY15E FY14E FY15E

Crompton Greaves 939 13.7 10.3 1.5 1.4 11.4 14.3

ABB India 2,084 43.2 34.3 4.4 4.0 10.7 12.2

Siemens 3,108 41.9 28.9 4.9 4.5 11.8 16.2

Median 27.3 34.3 4.3 4.0 11.4 14.3

AVERAGE 28.1 22.4 3.4 2.7 12.8 13.3

Source: Edelweiss research

Cash flow metrics


Operating cash flow 4,133 4,442 3,235 4,639

Investing cash flow (4,623) (11,367) (900) (2,150)

Financing cash flow 2,482 7,776 (1,638) (2,340)

Net cash flow 1,992 851 697 150

Capex (455) (2,164) (2,400) (2,150)

Dividends paid (1,193) (957) (2,310) (2,951)

Profitability & efficiency ratios


ROAE (%) 10.9 2.4 11.4 14.3

ROACE (%) 13.0 3.6 9.9 12.4

Inventory day 57 63 64 61

Debtors days 92 95 96 101

Payable days 94 100 103 102

Cash conversion cycle (days) 55 58 57 59

Current ratio 1.3 1.2 1.3 1.3

Debt/EBITDA 1.2 5.2 2.8 2.4

Fixed asset turnover (x) 5.0 4.3 4.0 4.5

Debt/Equity 0.3 0.6 0.6 0.6

Adjusted debt/equity 0.3 0.6 0.6 0.6

Interest coverage 9.6 1.9 6.6 8.3

Operating ratios


Total asset turnover 2.7 2.4 2.4 2.5

Fixed asset turnover 5.0 4.3 4.0 4.5

Equity turnover 3.3 3.4 3.6 3.8

Valuation parameters


Diluted EPS (INR) 5.8 1.3 6.5 8.6

Y‐o‐Y growth (%) (61.5) (77.4) 391.5 33.0

CEPS (INR) 9.9 4.5 9.8 12.1

Diluted PE (x) 15.4 67.9 13.7 10.3

Price/BV (x) 1.6 1.6 1.5 1.4

EV/Sales (x) 0.6 0.6 0.6 0.5

EV/EBITDA (x) 7.4 17.9 9.1 7.3

Dividend yield (%) 1.8 1.3 2.2 3.4

Basic EPS 5.8 1.3 6.5 8.6

Balance sheet (INR mn)

As on 31st March FY12 FY13 FY14E FY15E

Equity capital 1,283 1,283 1,283 1,283

Reserves & surplus 34,826 34,332 36,180 38,759

Shareholders funds 36,109 35,615 37,463 40,042

Minority interest (BS) 157 95 107 124

Short term debt 3,686 2,965 3,465 3,965

Long term debt 6,163 16,996 17,996 18,996

Borrowings 9,849 19,961 21,461 22,961

Sources of funds 45,602 53,990 57,350 61,445

Total fixed assets 24,068 32,628 32,935 32,887

Tangible assets 11,819 14,001 14,810 15,287

Intangible assets 9,264 14,698 14,096 13,470

CWIP (incl. intangible) 1,493 1,965 2,015 2,065

Total net fixed assets 22,575 30,663 30,921 30,822

Non current investments 2,853 2,901 2,901 2,901

Current Investments 5,012 5,007 3,507 3,507

Cash and equivalents 4,976 5,834 6,531 6,680

Inventories 12,233 16,367 15,685 17,875

Sundry debtors 31,433 31,605 37,532 43,397

Loans and advances 5,222 3,818 4,390 5,268

Other current assets 1,480 2,184 2,184 2,184

Total current assets (ex cash) 50,368 53,973 59,792 68,724

Sundry creditors and others 21,076 24,618 26,889 29,425

Provisions 19,106 19,770 19,412 21,764

Total current liabilities & 40,182 44,389 46,302 51,190

Net current assets (ex cash) 10,187 9,586 13,491 17,536

Net Deferred tax (513) (1,681) (1,681) (1,681)

Uses of funds 45,602 53,990 57,350 61,445

Book value per share (INR) 56.3 55.5 58.4 62.4

Free cash flow (INR mn)


Net profit 3,736 846 4,157 5,530

Depreciation 2,600 2,029 2,142 2,248

Others 75 (913) 841 905

Gross cash flow 6,411 1,963 7,140 8,684

Less: Changes in WC 2,278 (2,480) 3,905 4,045

Operating cash flow 4,133 4,442 3,235 4,639

Less: Capex 455 2,164 2,400 2,150

Free cash flow 3,678 2,278 835 2,489



Insider Trades Reporting Data Acquired / Seller B/S Qty Traded

No Data Available

*in last one year

Bulk Deals Data Acquired / Seller B/S Qty Traded Price

05 Sep 2012 Hsbc Global Investments Funds A/C Mauritius Ltd Hgif India Eq Buy 8915680 104.01

05 Sep 2012 Deutsche Securities Mauritius Ltd Sell 3261291 104.00

05 Sep 2012 Clsa (Mauritius) Ltd Sell 4623954 104.00

*in last one year

Holding – Top10 Perc. Holding Perc. Holding

Avantha holdings ltd 39.9 Hdfc asset managemen 9.08

Life insurance corp 5.46 Hsbc global inv maur 3.04

Hdfc life insurance 2.45 Govt pension fund gl 1.9

Norges bank 1.68 Reliance capital tru 1.59

Copthall mauritius i 1.4 Corella investments 1.12

*in last one year

Additional Data

Directors Data G Thapar Chairman L Demortier Managing Director

M Pudumjee Non Executive & Independent Director O Goswami Non Executive & Independent Director

S Prabhu Non Executive & Independent Director S Bayman S Bayman Non Executive & Independent Director

S Labroo Non Executive & Independent Director S P Talwar Non Executive & Independent Director

V Von Massow Non Executive & Independent Director S M Trehan Vice Chairman

Auditors ‐

*as per last annual report


Company Absolute

reco Relative

reco Relative

risk

Company Absolute

reco

Relative

reco

Relative

Risk

ABB India REDUCE SU L Bajaj Electricals HOLD SP M

BGR Energy REDUCE SU M Bharat Electronics BUY SO H

Bharat Heavy Electricals HOLD SP L Crompton Greaves HOLD SP M

Cummins India BUY SO L Havells India BUY SO M

Jyoti Structures HOLD SP M Kalpataru Power HOLD SP M

KEC International BUY SO M Larsen & Toubro BUY SO M

Techno Electric & Engineering HOLD SP M Thermax REDUCE SP L

RATING & INTERPRETATION

ABSOLUTE RATING

Ratings Expected absolute returns over 12 months

Buy More than 15%

Hold Between 15% and - 5%

Reduce Less than -5%

RELATIVE RETURNS RATING

Ratings Criteria

Sector Outperformer (SO) Stock return > 1.25 x Sector return

Sector Performer (SP) Stock return > 0.75 x Sector return

Stock return < 1.25 x Sector return

Sector Underperformer (SU) Stock return < 0.75 x Sector return

Sector return is market cap weighted average return for the coverage universe within the sector

RELATIVE RISK RATING

Ratings Criteria

Low (L) Bottom 1/3rd percentile in the sector

Medium (M) Middle 1/3rd percentile in the sector

High (H) Top 1/3rd percentile in the sector

Risk ratings are based on Edelweiss risk model

SECTOR RATING

Ratings Criteria

Overweight (OW) Sector return > 1.25 x Nifty return

Equalweight (EW) Sector return > 0.75 x Nifty return

Sector return < 1.25 x Nifty return

Underweight (UW) Sector return < 0.75 x Nifty return



Edelweiss Securities Limited, Edelweiss House, off C.S.T. Road, Kalina, Mumbai – 400 098. Board: (91‐22) 4009 4400, Email: [email protected]

Vikas Khemani Head Institutional Equities [email protected] +91 22 2286 4206

Nischal Maheshwari Co‐Head Institutional Equities & Head Research [email protected] +91 22 4063 5476

Nirav Sheth Head Sales [email protected] +91 22 4040 7499

Coverage group(s) of stocks by primary analyst(s): Engineering and Capital Goods

ABB India, BGR Energy, Bharat Electronics, Bharat Heavy Electricals, Bajaj Electricals, Crompton Greaves, Havells India, Jyoti Structures, KEC International, Cummins India, Kalpataru Power, Larsen & Toubro, Siemens, Sterlite Technologies, Techno Electric & Engineering, Thermax, Voltamp Transformers, Voltas

Distribution of Ratings / Market Cap

Edelweiss Research Coverage Universe

Rating Distribution* 120 49 17 186* ‐ stocks under review

Market Cap (INR) 118 56 12

Date Company Title Price (INR) Recos

Recent Research

01‐Jul‐13 Voltas Subdued on weak sentiments; Visit Note

81 Hold

01‐Jul‐13 ABB India Back to basics: Tough times call for tough measures; Visit Note

612 Reduce

05‐Jun‐13 Cummins India

Positioned for a long haul; Visit Note

459 Buy

> 50bn Between 10bn and 50 bn < 10bn

Buy Hold Reduce Total

Rating Interpretation

Buy appreciate more than 15% over a 12‐month period

Hold appreciate up to 15% over a 12‐month period

Reduce depreciate more than 5% over a 12‐month period

Rating Expected to


Crompton Greaves

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