Worst over for Crompton Greaves, upgrade to 'neutral': Nomura
Posted online: Wednesday, Dec 25, 2013 at 0000 hrs
We upgrade Crompton Greaves Ltd
to ‘neutral’ from ‘reduce’ on a 7% potential upside. We now value the company’s standalone business at 15x Q2 FY16f earnings per share (EPS) of R9 and add R4 per share as the value of the subsidiaries to arrive at our new target price of R139 per share. Our multiple of 15x is in line with long-term historical average traded range of similar industrial names as well as Crompton. We also back up our target price with sum-of-the-parts-based valuation using segmental benchmarked multiples that yields a fair value of R120, while our DCF-based valuation yields a range of Rs 140-154 per share.
In our view, the worst is over for Crompton Greaves, but the company is still a long way to recovery that is already priced in. Our analysis from the international peer group for Crompton suggests that the worst might be over as far as growth and pricing pressure in the power T&D sector is concerned.
While this still does not imply anything regarding timelines for a full fledged recovery, which we believe will be long-winded, we note that this is probably the right time to look at Crompton’s international portfolio more constructively. Notably, until now, we along with the street have been assigning negative value to the international business of the company due to its loss-making nature.