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CMP 87.00
Target Price 98.00
ISIN: INE067A01029
OCTOBER 1st
2013
CROMPTON GREAVES LTD. Result Update: Q1 FY14
BUYBUYBUYBUY
Index Details
Stock Data
Sector Heavy Electrical Equipment
BSE Code 500093
Face Value 2.00
52wk. High / Low (Rs.) 141.70/71.70
Volume (2wk. Avg.) 316000
Market Cap (Rs. in mn.) 55810.50
Annual Estimated Results (A*: Actual / E*: Estimated)
YEARS FY13A FY14E FY15E
Net Sales 71353.00 77774.77 83219.00
EBITDA 6476.80 6733.38 7419.82
Net Profit 4458.40 4615.30 5047.87
EPS 6.95 7.19 7.87
P/E 12.52 12.09 11.06
Shareholding Pattern (%)
1 Year Comparative Graph
CROMPTON GREAVES LTD S&P BSE SENSEX
SYNOPSIS
Crompton Greaves Ltd is a global pioneering leader in the management and application of electrical energy.
The company’s net profit registered a 3.63% increase and stood at a record Rs. 1246.30 mn from Rs. 1202.70 mn over the corresponding quarter last year.
Revenue for the quarter rose by 9.66% to Rs. 18194.20 million from Rs. 16591.70 million, when compared with the prior year period.
During the quarter, EBITDA is increased by 3.28% to Rs. 1822.20 mn against Rs. 1764.30 mn in Q1 FY13.
During the quarter ended 30th June, 2013, the Company has received orders worth of Rs. 24410 million.
From Railway segment in India, Crompton Greaves has received orders worth Rs. 176 crores.
The Company has bagged contract from Power Grid Corporation of India for 765 kV Power Transformer valued at Rs 231.7 crores.
Net Sales of the company are expected to grow at a CAGR of 9% over 2012 to 2015E.
CG has been awarded a contract worth € 3.5 mn for the design, engineering, supply, installation & commissioning of a wind farm substation at the 75 MW Seine Rive Gauche Nord wind farm in France.
CG has inaugurated motor facility in Bhopal for meet the growing global demand for drives and motors.
PEER GROUPS CMP MARKET CAP EPS P/E (X) P/BV(X) DIVIDEND
Company Name (Rs.) Rs. in mn. (Rs.) Ratio Ratio (%)
Crompton Greaves Ltd. 87.00 55810.50 6.95 12.52 1.83 60.00
Siemens Ltd. 481.00 171489.50 - - 4.33 300.00
ABB Ltd. 542.60 114981.50 5.71 95.03 4.43 150.00
Alstom India Ltd. 335.95 22521.20 29.43 11.38 2.81 100.00
Recommendation & Analysis - ‘BUY’
Crompton Greaves Limited has reported revenue of Rs. 18194.20 mn, against Rs. 16591.70 mn in the
corresponding quarter of previous year, registered a growth of 9.66%. Sales in the first quarter had improved
due to improvement in the Company’s overseas Power System business and the Consumer Products business in
India. The Company’s Power business back to profitability reflecting improvement in performance in Belgium
and Hungary. In Q1 FY14, the company has received orders worth of Rs. 24410 mn and Backlog orders at a
record high of Rs. 97710 mn. The Company had acquired the ZIV Group in Spain. After its acquisition, the
company had created a new business vertical within the Power BU, to provide across-the-board power
automation solutions for power utilities, rapid transport services and other businesses. The order book of the
Company was booked for the next 18 months. The Company continued to invest and upgrade facilities in
Hungary, India and Indonesia to manage costs and benefit from the market potential of the economies. The
Company has posted a net profit of Rs. 1246.30 million for the quarter ended June 30, 2013 as compared to Rs.
1202.70 million for the quarter ended June 30, 2012. Avantha Group Company CG has launched the new brake
motor called "Kibosh". CG’s Kibosh is set to tap the Rs 56 crore Indian markets for brake motors while meeting
the varying challenges of the heavy machinery industry.
The Group has posted a net profit after tax, Minority Interest and Share of Profit / (loss) of Associates has posted
a net profit of Rs. 600.80 mn for the quarter ended June 30, 2013 where as the same was at Rs. 859.00 mn in
previous year period. Total Income is Rs. 31925.40 mn for the quarter ended June 30, 2013 where as the same
was at Rs. 28303.30 mn for the quarter ended June 30, 2012. Over 2012-2015E, we expect the company to post a
CAGR of 9% in its top-line respectively. Hence, we recommend ‘BUY’ for ‘Crompton Greaves Ltd’ with a
target price of Rs. 98.00 on the stock.
QUARTERLY HIGHLIGHTS (STANDALONE)
Results updates- Q1 FY14,
Crompton Greaves Limited is one of the India’s
largest engineering conglomerates with diversified
portfolio of products, solutions & services, reported
its financial results for the quarter ended 30th June,
2013.
Months June-13 June-12 % Change
Net Sales 18194.20 16591.70 9.66
PAT 1246.30 1202.70 3.63
EPS 1.94 1.87 3.63
EBITDA 1822.20 1764.30 3.28
The company’s net profit jumps to Rs. 1246.30 million against Rs. 1202.70 million in the corresponding quarter
ending of previous year, an increase of 3.63%. Revenue for the quarter rose by 9.66% to Rs. 18194.20 million
from Rs. 16591.70 million, when compared with the prior year period. Reported earnings per share of the
company stood at Rs. 1.94 a share during the quarter, registering 3.63% increase over previous year period.
Profit before interest, depreciation and tax is Rs. 1822.20 millions as against Rs. 1764.30 millions in the
corresponding period of the previous year.
Break up of Expenditure
Break up of Expenditure
Value in Rs. Million
Q1 FY14 Q1 FY13
Cost of material Consumed 8785.60 8886.00
Purchases of Stock in Trade 5427.50 4213.20
Employees Benefit Expenses 1131.70 1014.20
Depreciation and Amortization Expense
211.80 170.50
Other Expenditure 1842.20 1775.90
Segment Revenue
Latest Updates
• Avantha Group Company CG has been awarded a contract worth € 3.5Mn for the design, engineering, supply,
installation & commissioning of a “WINDSUB” (wind farm substation) at the 75 MW Seine Rive Gauche Nord
wind farm in France. CG will also be responsible for upgrading/building the overall electrical system.
• Crompton Greaves has bagged three contracts from Power Grid Corporation of India for supply of 7 nos. 500
MVA single phase 765 kV auto transformers and 38 nos. 80 MVAR and 110 MVAR single phase 765 kV
reactors, valued at Rs 231.7 crore (35 M€) for its Thiruvelum, Kurnool, Raipur and Wardha substations.
• Avantha Group Company CG has launched the new brake motor called "Kibosh".
• CG has inaugurated motor facility in Bhopal for meet the growing global demand for drives and motors. The
equipment is primarily targeted at the oil and gas, cement, mining and metals, water treatment, electrical
transportation, and power generation sectors.
• The Company has approved the amalgamation of CG-ZIV Power Automation Solutions Ltd, India, ( a wholly
owned subsidiary) with the Company.
COMPANY PROFILE
Crompton Greaves Ltd is a global pioneering leader in the management and application of electrical energy. CG
with a permanent footprint and manufacturing facilities in nine countries across Asia, Europe and North
Amereica with more than 15,000 employees across its operations in around 85 countries, CG provides electrical
products, systems and services for utilities, power generation, industries, and consumers. The company is
organized into four business groups: Power, Industrial, Automation and Consumer. CG clocks US$ 2.3 billion in
revenues from product lines that cover the entire value chain of engineering offerings.
Business area
CG is a USD 2 billion engineering conglomerate with an impressive and diverse portfolio of products, solutions
and services ranging from high-end power and industrial equipments and solutions, to consumer products and
home appliances, addressing myriad needs
Products
Power Systems
Transformers & Reactors
Switchgear Products
Instrument Transformers
Power Quality Solutions
T&D Systems / Engineering
Solutions
Protection, Control &
Automation
Services for Power Systems
Transformer & Switchgear
Components
LV Switches & Panel Products
Case Studies
Industrial Systems
Motors: High / Low Voltage AC & DC
Generators / Alternators AC & DC
Traction Motors / Alternators /
Control Electrics
FHP / Commercial Motors
Railway Signalling & Coach
Applications
Drives & Automation
Stampings & Laminations
Services for Industrial Systems
Consumer Products
Fans
Appliances
Lighting
Pumps
Home Automation
Integrated Security
Systems
Wiring Accessories
FINANCIAL HIGHLIGHT (STANDALONE) (A*- Actual, E* -Estimations & Rs. In Millions)
Balance Sheet as at March31, 2012 -2015E
FY12A FY13A FY14E FY15E
SOURCES OF FUNDS (Rs.in.mn)
Shareholder's Funds
Share Capital 1283.00 1283.00 1283.00 1283.00
Reserves and Surplus 25725.80 29285.50 32946.19 36240.81
1. Sub Total - Net worth 27008.80 30568.50 34229.19 37523.81
Non Current Liabilities
Long term borrowing 20.60 7.50 8.55 9.32
Deferred Tax Liabilities 432.30 498.30 543.15 575.74
Other Long term liabilities 249.40 273.30 292.43 307.05
Long Term Provisions 311.10 380.90 441.84 494.87
2. Sub Total - Non Current Liabilities 1013.40 1160.00 1285.97 1386.97
Current Liabilities
Short Term Borrowings 2.00 129.30 152.57 170.88
Trade Payables 11710.30 15143.10 16960.27 18656.30
Other Current Liabilities 4778.60 4216.60 4427.43 4560.25
Short Term Provisions 1191.80 1478.70 1685.72 1854.29
3. Sub Total - Current Liabilities 17682.70 20967.70 23225.99 25241.72
Total Liabilities (1+2+3) 45704.90 52696.20 58741.15 64152.50
APPLICATION OF FUNDS
Non-Current Assets
Fixed Assets
Tangible assets 5308.90 6043.20 6828.82 7648.27
Intangible assets 652.70 561.70 589.79 613.38
Capital Work in Progress 582.90 749.10 906.41 1060.50
Intangible assets under development 210.30 398.60 478.32 545.28
a) Sub Total - Fixed Assets 6754.80 7752.60 8325.01 9322.15
b) Non-current investments 5515.90 5545.80 5823.09 6172.48
c) Long Term loans and advances 228.70 181.00 202.72 218.94
1. Sub Total - Non Current Assets 12499.40 13479.40 14350.82 15713.56
Current Assets
Current Investment 5009.10 5004.60 5459.49 5896.25
Inventories 4496.00 5485.00 6582.00 7569.30
Trade receivables 17356.20 18406.20 19878.70 21016.02
Cash and Bank Balances 3211.00 2887.90 3263.33 3656.48
Short-terms loans & advances 2644.40 6935.70 8669.63 9709.98
Other current assets 488.80 497.40 537.19 590.91
2. Sub Total - Current Assets 33205.50 39216.80 44390.33 48438.94
Total Assets (1+2) 45704.90 52696.20 58741.15 64152.50
Annual Profit & Loss Statement for the period of 2012 to 2015E
Value(Rs.in.mn) FY12A FY13A FY14E FY15E
Description 12m 12m 12m 12m
Net Sales 64853.80 71353.00 77774.77 83219.00
Other Income 504.10 530.70 705.83 762.30
Total Income 65357.90 71883.70 78480.60 83981.30
Expenditure -57647.00 -65406.90 -71747.23 -76561.48
Operating Profit 7710.90 6476.80 6733.38 7419.82
Interest -36.80 202.00 218.16 226.89
Gross profit 7674.10 6678.80 6951.54 7646.70
Depreciation -907.10 -718.60 -826.39 -909.03
Profit Before Tax 6767.00 5960.20 6125.15 6737.68
Tax -1718.40 -1501.80 -1509.85 -1689.81
Net Profit 5048.60 4458.40 4615.30 5047.87
Equity capital 1283.00 1283.00 1283.00 1283.00
Reserves 25725.80 29285.50 32946.19 36240.81
Face value 2.00 2.00 2.00 2.00
EPS 7.87 6.95 7.19 7.87
Quarterly Profit & Loss Statement for the period of 31st
Dec, 2012 to 30th Sep, 2013E
Value(Rs.in.mn) 31-Dec-12 31-Mar-13 30-Jun-13 30-Sep-13E
Description 3m 3m 3m 3m
Net sales 17460.50 20598.70 18194.20 18558.08
Other income 259.70 90.80 298.30 253.56
Total Income 17720.20 20689.50 18492.50 18811.64
Expenditure -16135.10 -19178.90 -16670.30 -17073.44
Operating profit 1585.10 1510.60 1822.20 1738.20
Interest 32.30 86.40 66.00 50.82
Gross profit 1617.40 1597.00 1888.20 1789.02
Depreciation -180.10 -193.00 -211.80 -220.27
Profit Before Tax 1437.30 1404.00 1676.40 1568.75
Tax -375.70 -326.80 -430.10 -392.50
Net Profit 1061.60 1077.20 1246.30 1176.25
Equity capital 1283.00 1283.00 1283.00 1283.00
Face value 2.00 2.00 2.00 2.00
EPS 1.65 1.68 1.94 1.83
Ratio Analysis
Particulars FY12A FY13A FY14E FY15E
EPS (Rs.) 7.87 6.95 7.19 7.87
EBITDA Margin (%) 11.89% 9.08% 8.66% 8.92%
PBT Margin (%) 10.43% 8.35% 7.88% 8.10%
PAT Margin (%) 7.78% 6.25% 5.93% 6.07%
P/E Ratio (x) 11.05 12.52 12.09 11.06
ROE (%) 18.69% 14.58% 13.48% 13.45%
ROCE (%) 31.88% 23.43% 21.98% 22.09%
EV/EBITDA (x) 6.82 8.19 7.83 7.05
Book Value (Rs.) 42.10 47.65 53.36 58.49
P/BV 2.07 1.83 1.63 1.49
Charts
OUTLOOK AND CONCLUSION
� At the current market price of Rs.87.00, the stock P/E ratio is estimated 12.09 x FY14E and 11.06 x FY15E
respectively.
� Earning per share (EPS) of the company for the earnings for FY14E and FY15E is seen at Rs. 7.19 and Rs. 7.87
respectively.
� Net Sales of the company are expected to grow at a CAGR of 9% over 2012 to 2015E respectively.
� On the basis of EV/EBITDA, the stock trades at 7.83 x for FY14E and 7.05 x for FY15E.
� Price to Book Value of the stock is expected to be at 1.63 x and 1.49 x respectively for FY14E and FY15E.
� We recommend ‘BUY’ in this particular scrip with a target price of Rs.98.00 for Medium to Long term
investment.
INDUSTRY OVERVIEW
The engineering sector is one of the largest sectors among the industrial segments in India. Majorly comprising
heavy and light engineering segments, this industry is closely linked with the manufacturing segments of the
economy.
The Indian engineering industry accounts for 27 per cent of the total factories in industrial sector and represents
63 per cent of the overall foreign collaborations. Asia’s third largest economy is globally acknowledged for its
low-cost, high-tech frugal innovation technology, according to a World Bank study named ‘Unleashing India’s
Innovations’. Foreign companies are not at all hesitant in outsourcing industrial engineering design tasks to
Indian firms in sectors like semiconductors, automotive hybrid technologies, next-gen routers in telecom, power
generation equipments, aerospace, avionics and consumer electronics, besides setting up research and
development (R&D) centres in the country.
Moreover, India is one of the leading offshore destinations in delivering engineering research and development
(ER&D) services with a market share of 22 per cent. The ER&D market in India is projected to grow to US$ 42
billion by 2020, according to a study titled 'Engineering R&D: Advantage India' by Zinnov.
Exports
The engineering sector is one of the major contributors to the country's total merchandise shipments. The US
and Europe together account for over 60 per cent of India's total engineering exports.
Engineering exports mainly include transport equipment, capital goods, other machinery/equipment and light
engineering products like castings, forgings and fasteners.
The Ministry of Commerce and Industries has set a target of shipping US$ 125 billion worth of engineering goods
by the end of 2013-14. Indian engineering companies are scouting for newer markets (like Latin America, Africa
etc.) for exports along with strengthening their base in the US and Europe.
During April-February 2012-2013, exports from the sector stood at US$ 51 billion.
Design & Engineering- Key Developments and Investments
The miscellaneous mechanical and engineering industries’ sector-wise foreign direct investments (FDI) inflows
from April 2000 to March 2013 was calculated at US$ 2.32 billion, as per the Department of Industrial Policy and
Promotion (DIPP).
• Capvent AG, a Swiss private equity (PE) fund company has bought a majority stake of 51 per cent in Morf
India, a Chennai-based water engineering company which has operations across South India. The capital
is to be deployed to develop new and innovative products, brand campaigns and expansion plans. The
company has also drafted a multi-tier business network, comprising distributors, channel partners and
lead generators to reach out to its customers.
• Engineering services company Tata Technologies has acquired US-headquartered Cambric Corporation
for US$ 32.5 million in order to boost its revenues from the European continent. The deal will give Tata
access to three development centres in Romania while the company is to benefit from Cambric’s existing
clientele in the construction and heavy equipment space, including marquee names such as Caterpillar
and CNH. Cambric’s existing customers will also have the option of being serviced by the Tata group
company centres in India.
Cambric is a service provider for system engineering and design capabilities in engine, power train,
chassis and structures, electrical and hydraulic systems.
• The public sector power equipment major BHEL had recently signed a deal with Mitsubishi according to
which the Japanese company will render the former the technology for removing the harmful sulphurous
compounds from the gases that escape out of thermal power plants.
BHEL hopes to earn Rs 1,500 crore (US$ 251.77 million) of additional business, arising out of this
recently-signed technology tie-up with Mitsubishi Heavy Industries.
• Indian Space Research Organisation (ISRO) is planning to launch India’s first navigation satellite - Indian
Regional Navigation Satellite System-1A (IRNSS-1A) - on July 1, 2013 from Satish Dhawan Space Centre,
Sriharikota.
The 1,425 kg-equipment, IRNSS-1A will have a life span of about 10 years and will provide satellite-based
terrestrial, aerial and marine navigation services and also help in disaster and fleet management and
vehicle tracking, as per an ISRO statement.
ISRO also intends to have a constellation of seven satellites under IRNSS by 2014-15.
Government Initiatives
Dr Manmohan Singh, the Prime Minister of India, has revealed the country's new Science, Technology and
Innovation policy which aims to increase the number of full time equivalent of R&D personnel in India by at least
66 per cent of the present strength in five years.
Alongside, the National Policy on Electronics (NPE) proposes to set up more than 200 Electronic Manufacturing
Clusters in India while the Government of India (GoI) has proposed to create an electronics development fund of
US$ 2 billion to promote innovation, intellectual property, R&D, nano electronics and help commercialise made-
in-India products. The chip design and embedded software market in India is estimated to reach US$ 55 billion
by 2020, as per the targets set by NPE.
In addition to that, the Government plans to give an impetus to engineering in India through investments in
infrastructure development in 2012-17 in telecom, energy and construction sector, as per a report by Nasscom
and Booz & Co.
Road Ahead
India produces over 200,000 engineers every year and has a strong pool of scientists and engineers, vast
institutional network, and cost effective manufacturing
Domestic and international companies have increased their stakes in R&D in sectors like Information,
Communication and Technology (ICT), automobiles and auto components, industrial engineering, electronics and
pharmaceuticals. India is also witnessing R&D growth in areas such as genetic modification, bio-energy sources,
biochemistry, atomic energy, organ donation and biomedical science. Indian design houses are playing a crucial
role in the development of new automobiles seeing potential markets overseas.
Meanwhile, Indian offshore ER&D services market is expected to reach US$ 37-45 billion and create over one
million jobs by 2020, according to an industry report by Nasscom and Booz & Co. This will be about 35 per cent
of the overall ER&D market, which is estimated to touch US$ 118 billion by 2020, while being currently pegged at
US$ 10.2 billion.
Disclaimer:
This document prepared by our research analysts does not constitute an offer or solicitation for the purchase or sale
of any financial instrument or as an official confirmation of any transaction. The information contained herein is
from publicly available data or other sources believed to be reliable but do not represent that it is accurate or
complete and it should not be relied on as such. Firstcall India Equity Advisors Pvt. Ltd. or any of it’s affiliates shall
not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the
information contained in this report. This document is provide for assistance only and is not intended to be and must
not alone be taken as the basis for an investment decision.
Firstcall India Equity Research: Email – [email protected]
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