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COMPANY UPDATE

10 FEB 2016

Crompton Greaves
BUY
INDUSTRY

CAPITAL GOODS

CMP (as on 9 Feb 2016)

Rs 129

Target Price

Rs 174

Nifty

7,298

Sensex

24,021

KEY STOCK DATA


Bloomberg

CRG IN

No. of Shares (mn)

627

MCap (Rs bn) / ($ mn)

81/1,187

6m avg traded value (Rs mn)

486

STOCK PERFORMANCE (%)


52 Week high / low

Rs 204 / 120
3M

6M

12M

Absolute (%)

(23.8) (33.3)

(20.8)

Relative (%)

(15.8) (18.4)

(5.9)

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

In good hands
Amidst high scepticism, the new management of
Crompton Greaves Consumer Electricals (CGCEL)
reported its first quarterly show. There were no
negative surprises either in terms of lower revenues
or major one-off costs. Revenue growth at 12% YoY
(Rs 8.1bn) was healthy. The management said the
ownership transition didnt hamper sales traction,
which is creditable. All sub-segments (fans, lighting,
pumps and appliances) saw double-digit growth.
The focus areas now include (1) Brand investments,
(2)
Product
innovation,
(3)
Strengthening
distribution, especially via modern trade and
ecommerce and (4) Systems and process overhaul.
We sense that the business is in good hands. While
revenue growth does not look challenging, recurring
PBT margins are currently in the 8-9% range (lower
than our estimate, see our report), with corporate
costs now more delineated for the business. Hence,
our FY18E EPS falls 18%.
As expected, CGCEL has a light balance sheet with
merely ~Rs 800mn of net fixed assets, Rs 500mn of
cash and negative WC. On a tangible asset base of

~Rs 1bn, the business can generate OCF of ~Rs 2bn.


We value CGCEL at Rs 111 per share (25x FY18E EPS),
thereby arriving at a revised TP of Rs 174/share (Rs
200 earlier) for Crompton Greaves (CG). Retain BUY.

Highlights of the quarter

We expect the new leadership to drive


aggressively, enabling revenue growth in LED and
appliances. While confidence on revenue growth
is high, EBIT margins would be a confluence of (1)
Corporate expenses, (2) Increase in A&P spends
and (3) Operating leverage benefits. We expect
PBT margins of 8.5/9.0% for FY17/18E.

The CG management said the record date for the


demerger was likely to be end of Feb-15. CGCELs
new management expects a listing of the
demerged entity by Apr-16.

Near-term outlook: We believe the recent


correction factors in the uncertainty looming over
the sale of the international business. We dont
see any material downsides from current levels,
especially in the wake of an upcoming open offer.

Financial Summary
(Rs mn)
Net Sales
PBT
PAT
Diluted EPS (Rs)

3QFY16
8,101
641
424
0.7

3QFY15
7,232
274
769
1.2

YoY (%)
12
NC
NC
NC

2QFY16
8,044
641
428
0.7

QoQ (%)
1
NA
NA
NA

FY15
32,327
3,971
2,694
4.3

FY16E
36,206
3,802
2,524
4.0

FY17E
40,550
3,447
2,289
3.7

FY18E
46,633
4,197
2,787
4.4

Source: Company, HDFC sec Inst Research, Note: Above numbers represent only consumer business. YoY numbers are not comparables on
account of adjustment for corporate costs

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

CROMPTON GREAVES: COMPANY UPDATE

Consumer Quarterly Financials: Snapshot


(Rs mn)
Net Sales
EBIT
PBT
Tax
PAT

3QFY16
8,101
798
641
218
424

3QFY15
7,232
866
860
274
586

YoY (%)
12
NC
NC
NC
NC

2QFY16
8,044
778
641
213
428

QoQ (%)
1
NC
NC
NC
NC

9MFY16
25,853
2,964
2,487
830
1,657

9MFY15
23,274
2,859
2,830
904
1,925

YoY (%)
11
NC
NC
NC
NC

Source: Company, HDFC sec Inst Research, Note: YoY numbers are not comparables on account of adjustment for corporate costs

Margin Analysis (Consumer)


Margin Analysis - Consolidated
EBIT (%)
PBT (%)
Net Profit Margin (%)
Tax Rate (%)

3QFY16
9.9
7.9
5.2
33.9

3QFY15 YoY (bps)


12.0
NC
11.9
NC
8.1
NC
31.9
NC

2QFY16 QoQ (bps)


9.7
NC
8.0
NC
5.3
NC
33.2
NC

9MFY16
11.5
9.6
6.4
33.4

9MFY15 YoY (bps)


12.3
NC
12.2
NC
8.3
NC
32.0
NC

Source: Company, HDFC sec Inst Research, Note: YoY numbers are not comparables on account of adjustment for corporate costs

Revenue growth picking up


Revenue

Rs mn

Growth YoY

12,000

25.0

10,000

20.0

8,000

15.0

6,000
10.0

4,000

3QFY16

2QFY16

1QFY16

4QFY15

3QFY15

2QFY15

1QFY15

4QFY14

3QFY14

2QFY14

1QFY14

0.0

4QFY13

3QFY13

5.0

2QFY13

2,000

1QFY13

EBIT before corporate


expenses and exceptional
items stood at Rs 992mn
(12.3% of sales) broadly in
line with historical trends

Source: Company, HDFC sec Inst Research

Page | 2

CROMPTON GREAVES: COMPANY UPDATE

PBT margins would be a


confluence of (a) Corporate
expenses, (b) Increase in
A&P spends and (c)
Operating leverage benefits.
We expect PBT margins of
8.5/ 9.0% for FY17/18E

Key Estimates and Assumptions


(Rs mn)
Revenue
PBT
PBT margin (%)
PAT
EPS

FY14
28,471
3,329
11.7%
2,367
3.8

FY15
32,327
3,971
12.3%
2,694
4.3

FY16E
36,206
3,802
10.5%
2,524
4.0

FY17E
40,550
3,447
8.5%
2,289
3.7

FY18E
46,633
4,197
9.0%
2,787
4.4

Source: Company, HDFC sec Inst Research


SOTP valuation

Business
SA business (ex-consumer)
Consumer business
International business
SOTP
CMP
Upside

Method
P/E multiple
P/E multiple
P/B multiple

FY18E PAT
2,850
2,787
20,000

Multiple (x)
12.0
25.0
0.25

Valuation
34,206
69,670
5,000

VPS
55
111
8
174
129
35%

Source: HDFC sec Inst Research

Peer Valuation
MCap CMP
TP
Rating
(Rs bn) (Rs)
(Rs)
L&T
1036 1,114 BUY 1,222
BHEL
317
131
UR
NA
Thermax
95
800
SELL
710
Crompton Greaves
81
129
BUY
174
Cummins India
257
928
BUY 1,020
Voltas
93
281
UR
NA
Company

FY16E
23.3
24.8
33.5
(91.5)
33.7
30.6

P/E (x)
P/B (x)
ROE (%)
FY17E FY18E FY16E FY17E FY18E FY16E FY17E FY18E
18.6 15.4
2.4
2.2
2.0 10.4 12.1 13.4
12.3 16.0
0.9
0.9
0.9
4.4
7.3
6.0
28.8 28.8
4.2
3.8
3.5 13.0 14.0 12.8
(98.3) 30.8
2.1
2.2
2.1 (2.3) (2.2)
7.0
31.3 27.3
8.1
7.3
6.4 25.1 24.4 25.0
26.4 23.2
4.0
3.7
3.3 13.8 14.5 14.9

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)

1,443
4,283
2,220
2,064
30

1,765
2,939
2,223
715
55

1,838
576
1,417
(841)
50

1,920
4,210
1,709
2,501
20

727

1,620

2,443
188.9
3.9
195.7

1,367
(44.1)
2.2
(44.1)

(850)
(162.2)
(1.4)
(162.2)

(791)
(6.9)
(1.3)
(6.9)

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 cash

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
8,358

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)
8,501

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)
5,705

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
10,476

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

31.8
2.1
13.7
0.7
7.1
4.3
3.7

56.9
2.0
16.2
0.7
(10.4)
(9.1)
(4.4)

(91.5)
2.1
26.4
0.8
2.3
(1.3)
(3.2)

(98.3)
2.2
29.1
1.0
11.3
7.3
6.6

30.8
2.1
14.0
0.9
2.8
(1.3)
(0.9)

Source: Company, HDFC sec Inst Research

Page | 5

CROMPTON GREAVES: COMPANY UPDATE

RECOMMENDATION HISTORY

Date
4-Feb-15
29-May-15
3-Feb-16
10-Feb-16

TP

Crompton
220
200

CMP
179
168
131
129

Reco
BUY
BUY
BUY
BUY

Target
209
206
200
174

180
160
140

Feb-16

Jan-16

Dec-15

Nov-15

Oct-15

Sep-15

Aug-15

Jul-15

Jun-15

May-15

Apr-15

Mar-15

Feb-15

120

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