Stock Review: Crompton Greaves

Crompton Greaves' December quarter results were in line with market expectations. Consolidated revenues rose seven per cent to `2,397 crore, with consumer products and industrial systems segments growing 30 per cent (to `475 crore) and 23 per cent (to 381 crore), respectively. The power systems business continued to witness flat growth at `1,545 crore (consolidated), led by delays in deliveries by utility companies, pricing pressure in the domestic market and a marginal decline of 2.7 per cent in international operations.

As projected, the company maintained operating profit margin at 14.2 per cent, while net profit margin improved 83 basis points to 9.7 per cent on lower taxation (down 27 per cent).

The management has projected consolidated revenue growth of 15-20 per cent in 2011-12 on the back of robust growth in consumer products and industrial systems segments. While muted growth in the domestic power business is likely to continue in the March quarter, the company expects a double-digit increase in 2011-12.

After registering a fall for the past several quarters, revenues from subsidiaries rose five per cent sequentially (rupee terms) and 13 per cent year-on-year (in euro terms) to `998 crore, indicating revival. However, rising commodity prices can keep margins under pressure.

Muted order flow from Power Grid Corporation has been a concern and is expected to be monitored. However, the company is witnessing better traction in domestic orders and expects a strong pipeline in 2011-12. This is partly reflected in the 25 per cent year-on-year growth in the standalone order book at 3,700 crore in the December quarter.

Though the company commands a strong position in the market, analysts are cautious about competition in the Indian transmission and distribution sector. Listing of Avantha Power (32 per cent stake) and acquisition initiatives can act as positive triggers.

Robust growth in consumer products and industrial systems, along with a revival of the power systems business, to aid revenues