Saturday, February 9, 2008


An Indian multinational

By SP Tulsian

A Thapar group company, Crompton Greaves (CG) is one of the largest private sector enterprises in India, engaged in the manufacture of products related to power generation, transmission, and distribution.

Power is one of the fastest growing sectors of India and is expected to only grow further. And when the industry is destined to have such superlative growth, it is but natural that one of the leading power equipment manufacturing companies in this sector would also record growth exponentially. So on a macro level, the future of CG, in the backdrop of the power sector, looks immensely bright.

CG's business operations consist of 22 manufacturing divisions spread across in Gujarat, Maharashtra, Goa, Madhya Pradesh and Karnataka, supported by well knitted marketing and service network through 14 branches in various states.

The company has posted very good results for the third quarter ended 31st December 2007. On a standalone basis, the total income, on a y-on-y rose 13% at Rs.1014.36 crore. Despite the 10% rise in total expenditure and tax expenses more than doubling, infact it went up by a whopping 70%, the company showed a very healthy 49% rise in net profit at Rs.67.90 crore.

On a nine months basis, the standalone rise has been more spectacular. Y-on-Y, total income rose 15% at Rs.3017.27 crore and the net profit surged by a whopping 72% at Rs.210.85 crore, which is more than the full year net profit of Rs.192.37 crore in FY07.

On a consolidated basis, the total income of the company for Q3 ended 31st December 2007 stood at Rs.1,806.94 crore. Net profit was at Rs.82.71crore. For the nine months period, total income surged to Rs.5,127.76 crore and net profit was at Rs.263.55 crore, which is very good, when one looks at the net profit of Rs.281.74 crore posted for full year ended 31st March 2007, leaving no doubt that the CG will end the current fiscal on a much higher note.

The biggest contributor to the revenue, as always, has been the power systems unit, with almost equitable revenues coming in from the consumer products and industrial systems units. Its customer list, apart from the state electricity boards, reads like a virtual list of “who’s who”, including names like Power Grid Corporation of India, Infosys, Kirloskar Brothers, Reliance Energy, Larsen & Toubro, Whirlpool (India), ABB Ltd, Mather & Platt India, BPCL and Indian Space Research Organisition, to name a few.

The company’s equity capital currently stands at Rs.73.31 crore and on a face value of Rs.2 per share; the annualized EPS stands at Rs.9.60, on a consolidated basis. The company is actually comparable to giants in the electrical equipments segment, like ABB, and Bharat Bijlee. So in that context, based on the earnings, it would be no exaggeration to say that CG is an Indian multinational.

The promoter’s stake in the company is at 39% while mutual funds and banks are holding 46%, with 15% being held by the public.

The company is expected to end FY08 on a highly optimistic note, with net profit expected to be around Rs.400 crore, on a consolidated basis, resulting in an EPS of close to Rs.11.

In November, when the indices were heated up, the stock was quoted at Rs.450 and currently, after all the sell off; the stock has come down to more accessible levels of Rs.3150. Others like Havells, Areva T&D, Emco, which are in the same sector but with much lower earnings and profitabilities, are quoted much above CG, thus presenting a great opportunity once again for those looking for great long term bargains.

At the current rate of Rs.315, Crompton Greaves is undoubtedly a safe bet. Buy it for a comfortable 45-50% return over the next 12 months.

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