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 – info@firstcallindia.com

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