COMPANY UPDATE

09 MAR 2016

Crompton Greaves
BUY
INDUSTRY

CAPITAL GOODS

CMP (as on 9 Mar 2016)

Rs 152

Target Price

Rs 178

Nifty

7,532

Sensex

24,794

KEY STOCK DATA

Bloomberg

CRG IN

No. of Shares (mn)

627

MCap (Rs bn) / ($ mn)

95/1,416

6m avg traded value (Rs mn)

651

STOCK PERFORMANCE (%)

52 Week high / low

Rs 204 / 114
3M

6M

12M

Absolute (%)

(18.5)

(8.4)

(13.2)

Relative (%)

(17.5)

(4.8)

0.9

SHAREHOLDING PATTERN (%)

Promoters

34.42

FIs & Local MFs

31.00

FIIs

18.17

Public & Others

16.41

Source : BSE

Pawan Parakh, CFA

pawan.parakh@hdfcsec.com
+91-22-6171-7314

Lower valuation, higher visibility

Crompton Greaves (CG) concluded the sale of its
international power business for Eur 115mn. While
the valuation of the business is lower than expected,
the sale eases CGs concerns of persisting losses in its
international operations. With current consolidated
net debt of Rs 9bn, the management expects to be
net debt-free after this transaction. The company has
also initiated the sale/shutdown of its international
systems business (to be completed in FY17E), which
will boost overall profitability.
Concerns cropping up post-3QFY16 results have been
well addressed by the company. More importantly,
we note that CG now has fewer moving parts and
significantly higher visibility on improvement in
profitability. We await clarity on deal timelines and
balance sheet details to revise our estimates.
With the exit of the international power
product/systems business, we expect CG to be
EBITDA and PAT positive on consolidated basis in
FY18E. We reiterate BUY on CG with an SOTP-based
TP of Rs 178/sh (Rs 174 earlier).

Key highlights of the deal

The management expects the share purchase

agreement to be finalised by the end of Mar-16
and another six months (for regulatory and other
approvals) to conclude the deal.

Of the total sale consideration, EUR 85mn will be

received on the completion of the deal and the
balance EUR 30mn (earnout money) over the next
18 months.

For CG, the deal is on no-recourse basis for any

contingent liability/warranty provisions for
existing contracts to be executed post the sale.

There is no restriction on CGs exports to any

international geography in competition with the
entity sold.

Near-term outlook: We expect the stock to

outperform given the sale of the international
business and the upcoming record date for
demerger of the consumer business.

Financial Summary
(Rs mn)
Net Sales
Adjusted EBITDA
APAT
Diluted EPS (Rs)
P/E (x)
EV / EBITDA (x)
RoE (%)

FY15
140,131
5,950
1,367
2.2
69.6
19.2
3.7

FY16E
118,282
3,795
(850)
(1.4)
(112.0)
31.0
(2.3)

FY17E
95,189
3,273
(791)
(1.3)
(120.3)
34.4
(2.2)

FY18E
105,055
7,053
2,521
4.0
37.7
16.5
7.0

Source: Company, HDFC sec Inst Research

HDFC securities Institutional Research is also available on Bloomberg HSLB <GO>& Thomson Reuters

CROMPTON GREAVES: COMPANY UPDATE

The deal implies a shortfall of Rs 7.5bn

Investments and loans
pertaining to the entities sold
stood at Rs 16bn against
which CG realized Rs 8.5bn,
implying a shortfall/ loss of Rs
7.5 bn

Particulars
Consolidated Net debt (As on 31-Dec-15)
Less: Automation business related debt
Debt related to entities sold
Investment and Loans from parent to the sold entities
EV of business sold
Less: Sale consideration
Shortfall
Loss per share

Rs mn
9,000
6,000
3,000
13,000
16,000
8,500
7,500
12.0

Source: Company, HDFC sec Inst Research

Key Estimates and Assumptions

The estimates for

international business would
be revised post clarity on
timelines on the sale
transaction. However we
expect international business
to EBITDA and PAT positive in
FY18E

Rs mn
Revenue
Power
YoY (%)

FY15

FY16E

FY17E

FY18E

27,341
-3%

23,923
-13%

25,119
5%

27,631
10%

Industrial
YoY (%)

15,044
1%

15,797
5%

17,376
10%

19,461
12%

International subs
YoY (%)

62,540
2%

51,283
-18%

52,821
3%

58,103
10%

EBIT margins
Power - SA
Industrial - SA
International subs

8.1%
10.1%
-3.1%

6.0%
10.5%
-5.3%

7.0%
10.5%
-2.7%

7.5%
11.0%
2.7%

Source: Company, HDFC sec Inst Research

Note : The estimates for international business would be revised post clarity on timelines on the sale transaction

Page | 2

CROMPTON GREAVES: COMPANY UPDATE

SOTP valuation
We value the international
automation business at 10x
FY18E EV/ EBITDA arriving at
a valuation of Rs7.4 bn. Our PT
of Rs 178/ share implies 17%
upside from current levels
With better quarterly
performance there exists
scope for improvement in
valuations for CG

Business
SA business (ex-consumer)
Consumer business
International business
Avantha Power Investment
SOTP

Method
P/E multiple
P/E multiple
EV/ EBITDA
P/B multiple

FY18E PAT
2,850
2,787
788
2,270

Multiple (x)
12.0
25.0
10.0
0.0

Valuation
34,206
69,670
7,375
0

VPS
55
111
12
0
178

Source: HDFC sec Inst Research

Peer Valuation
Company

MCap
(Rs bn)

CMP
(Rs)

Rating

L&T
BHEL
Thermax
Crompton Greaves
Voltas
Cummins India

1,127
263
90
95
80
239

1,213
108
756
152
243
863

BUY
UR
SELL
BUY
NEU
BUY

TP
(Rs)

FY16E
1,222
23.3
NA
45.2
710
31.6
178 (112.0)
254
26.9
1,020
31.3

P/E (x)
FY17E
18.6
18.0
27.2
(120.3)
23.8
29.1

FY18E FY16E
15.4
2.4
11.9
0.8
27.1
4.0
37.7
2.6
21.6
3.5
25.3
7.5

P/B (x)
FY17E
2.2
0.7
3.6
2.7
3.2
6.7

FY18E FY16E
2.0 10.4
0.7
1.7
3.3 13.0
2.6 (2.3)
2.9 13.6
6.0 25.1

ROE (%)
FY17E FY18E
12.1
13.4
4.2
6.1
14.0
12.8
(2.2)
7.0
14.0
14.1
24.4
25.0

Source: HDFC sec Inst Research

Page | 3

CROMPTON GREAVES: COMPANY UPDATE

Income Statement
(Rs mn)
Net Revenues
Growth (%)
Material Expenses
Employee Expenses
SG&A Expenses
Total Expenses
EBIDTA
EBIDTA %
EBIDTA Growth %
Depreciation
EBIT
Other Income (Including EO
Items)
Interest
PBT
Tax
RPAT
Minority Interest
EO (Loss) / Profit (Net Of Tax)
APAT
APAT growth %
Adjusted EPS (Rs)
EPS growth %

Balance Sheet
FY14
134,806
11.5
91,353
19,521
17,113
127,986
6,820
5.1
78.0
2,621
4,198

FY15
140,131
4.0
95,305
19,936
18,941
134,181
5,950
4.2
(12.7)
2,620
3,330

FY16E
118,282
(15.6)
79,166
18,461
16,859
114,486
3,795
3.2
(36.2)
2,703
1,092

FY17E
95,189
(19.5)
61,405
16,784
13,727
91,916
3,273
3.4
(13.8)
2,798
475

FY18E
105,055
10.4
67,505
16,713
13,783
98,001
7,053
6.7
115.5
2,966
4,087

2,115

2,397

3,612

1,938

2,043

1,366
4,947
2,361
2,587
(143)
2,443
188.9
3.9
195.7

1,443
4,283
2,220
2,064
30
727
1,367
(44.1)
2.2
(44.1)

1,765
2,939
2,223
715
55
1,620
(850)
(162.2)
(1.4)
(162.2)

1,838
576
1,417
(841)
50
(791)
(6.9)
(1.3)
(6.9)

1,920
4,210
1,709
2,501
20
2,521
(418.8)
4.0
(418.8)

Source: Company, HDFC sec Inst Research

(Rs mn)
SOURCES OF FUNDS
Share Capital
Reserves
Total Shareholders Funds
Minority Interest
Long Term Debt
Short Term Debt
Total Debt
Deferred Taxes
Long Term Provisions &
Others
TOTAL SOURCES OF FUNDS
APPLICATION OF FUNDS
Net Block
CWIP
Investments
LT Loans & Advances
Inventories
Debtors
Other Current Assets
Cash & equivalents
Total Current Assets
Creditors
Other Current Liabilities &
Provns
Total Current Liabilities
Net Current Assets
TOTAL APPLICATION OF
FUNDS

FY14

FY15

FY16E

FY17E

FY18E

1,254
35,192
36,446
117
16,323
7,614
23,936
(1,532)

1,254
36,906
38,159
203
19,039
8,399
27,438
(1,110)

1,254
35,323
36,576
173
22,000
6,000
28,000
(320)

1,254
33,799
35,052
153
22,000
6,000
28,000
(320)

1,254
35,586
36,840
163
22,000
8,500
30,500
(320)

731

655

528

461

487

59,698

65,345

64,957

63,346

67,670

32,408
2,184
2,780
499
16,714
35,913
7,893
8,358
68,878
43,717

28,634
1,267
2,806
237
14,552
37,318
13,485
8,501
73,856
37,985

27,198
3,600
4,806
434
12,572
31,919
12,616
5,705
62,812
31,096

28,000
3,750
6,806
232
10,838
24,489
6,738
10,476
52,542
25,542

28,784
4,000
8,806
258
11,479
27,037
7,484
9,560
55,561
27,160

3,333

3,470

2,797

2,442

2,579

47,050
21,828

41,455
32,401

33,893
28,919

27,984
24,558

29,739
25,822

59,699

65,345

64,957

63,346

67,670

Source: Company, HDFC sec Inst Research

Page | 4

CROMPTON GREAVES: COMPANY UPDATE

Cash Flow
(Rs mn)
Reported PBT
Non-operating & EO items
Interest
Depreciation
Working capital change
Tax Paid
Other operating items
OPERATING CASH FLOW (a)
Capex
Free Cash Flow
Investments
Non-operating Income
INVESTING CASH FLOW (b)
Debt Issuance/(Repaid)
Interest
FCFE
Share Capital Issuance
Minority Interest
Dividend
FINANCING CASH FLOW (c)
NET CASH FLOW (a+b+c)
Closing CF as per AR

Key Ratios
FY14
4,947
(2,115)
1,366
2,621
(2,513)
(2,411)
4,692
6,588
(2,620)
3,968
1,242
400
(978)
274
(1,337)
2,905
(1,335)
(8)
(888)
(3,294)
2,316
8,150

Source: Company, HDFC sec Inst Research

FY15
4,283
(2,397)
1,443
2,620
(9,983)
(2,468)
(3,560)
(10,060)
1,310
(8,750)
2,578
396
4,284
6,744
(1,430)
(3,436)
100
(895)
4,520
(1,257)
6,893

FY16E
2,939
(3,612)
1,765
2,703
488
(2,223)
221
2,281
(3,600)
(1,319)
(1,525)
1,992
(3,133)
562
(1,765)
(2,523)
(30)
(733)
(1,967)
(2,819)
5,682

FY17E
576
(1,938)
1,838
2,798
9,335
(1,417)
(464)
10,726
(3,750)
6,976
(1,530)
1,938
(3,342)
(1,838)
5,139
(20)
(733)
(2,591)
4,794
10,499

FY18E
4,210
(2,043)
1,920
2,966
(2,206)
(1,709)
(424)
2,715
(4,000)
(1,285)
(1,530)
2,043
(3,487)
2,500
(1,920)
(705)
10
(733)
(144)
(916)
9,560

PROFITABILITY %
GPM
EBITDA margin
APAT margin
RoE
Core RoCE
RoCE
EFFICIENCY
Tax rate %
Fixed Asset Turnover (x)
Inventory (days)
Debtors (days)
Payables (days)
Cash Conversion Cycle (days)
Debt/EBITDA (x)
Net D/E (x)
Interest Coverage (x)
PER SHARE DATA (Rs)
EPS
CEPS
Dividend
Book Value
VALUATION
P/E
P/BV
EV/EBITDA
EV/Revenues
OCF/EV (%)
FCF/EV (%)
FCFE/MCAP (%)

FY14

FY15

FY16E

FY17E

FY18E

32.2
5.1
1.8
6.8
4.6
5.8

32.0
4.2
1.0
3.7
3.0
3.4

33.1
3.2
(0.7)
(2.3)
0.5
(0.7)

35.5
3.4
(0.8)
(2.2)
(1.2)
(5.4)

35.7
6.7
2.4
7.0
4.4
5.6

47.7
0.3
45.3
97.2
118.4
24.1
3.5
0.4
3.1

51.8
0.3
37.9
97.2
98.9
36.2
4.6
0.5
2.3

75.7
0.2
38.8
98.5
96.0
41.3
7.4
0.6
0.6

246.0
0.2
41.6
93.9
97.9
37.5
8.6
0.5
0.3

40.6
0.2
39.9
93.9
94.4
39.5
4.3
0.6
2.1

3.9
8.1
21.1
58.2

2.2
6.4
24.1
60.9

(1.4)
3.0
19.3
58.4

(1.3)
3.2
24.3
55.9

4.0
8.8
29.2
58.8

39.0
2.6
16.2
0.8
5.9
3.6
3.1

69.6
2.5
19.2
0.8
(8.8)
(7.7)
(3.6)

(112.0)
2.6
31.0
1.0
1.9
(1.1)
(2.7)

(120.3)
2.7
34.4
1.2
9.5
6.2
5.4

37.7
2.6
16.5
1.1
2.3
(1.1)
(0.7)

Source: Company, HDFC sec Inst Research

Page | 5

CROMPTON GREAVES: COMPANY UPDATE

RECOMMENDATION HISTORY
Crompton

Date
29-May-15
3-Feb-16
10-Feb-16
9-Mar-16

TP

220
200
180

CMP
168
131
129
152

Reco
BUY
BUY
BUY
BUY

Target
206
200
174
178

160
140
120

Mar-16

Feb-16

Jan-16

Dec-15

Nov-15

Oct-15

Sep-15

Aug-15

Jul-15

Jun-15

May-15

Apr-15

Mar-15

100

Rating Definitions
BUY
: Where the stock is expected to deliver more than 10% returns over the next 12 month period
NEUTRAL : Where the stock is expected to deliver (-)10% to 10% returns over the next 12 month period
SELL
: Where the stock is expected to deliver less than (-)10% returns over the next 12 month period

Page | 6

CROMPTON GREAVES: COMPANY UPDATE

Disclosure:
I, Pawan Parakh, CA, CFA, author and the name subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our views about the subject
issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report.
Research Analyst or his/her relative or HDFC Securities Ltd. does not have any financial interest in the subject company. Also Research Analyst or his relative or HDFC Securities Ltd. or its
Associate may have beneficial ownership of 1% or more in the subject company at the end of the month immediately preceding the date of publication of the Research Report. Further
Research Analyst or his relative or HDFC Securities Ltd. or its associate does not have any material conflict of interest.
Any holding in stock No
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Page | 7