Maintain ‘buy’ on Crompton Greaves with target price of R271 per share valuing the standalone business at 22x FY16e, overseas at 0.5x EV/sales. Crompton’s journey to emerge as a ‘global corporation
’ from India continues to face multiple ‘growth pangs’. Phase-I of the restructuring program, encompassing the European operations had been largely completed; and the business reported ebitda breakeven in FY14. There had been initial successes in strategic areas like geography expansion, moving up the value chain, widening the production footprint, etc. Thus, FY15/FY16 should witness the gains of the fructification of these efforts over the last two years.
Demerger of the consumer business will unlock shareholder value; asset sale by promoters will address investor apprehensions on pledge shares.
Over the last four months, Crompton Greaves, including Avantha Holdings, has announced multiple steps towards asset monetisation. The company sold 8 acres of land in Kanjurmarg factory for R300 crore in Q2FY15. Consumer business demerger and promoter selling stake in consumer business. The company notified that Avantha Holdings is likely to sell a part of its shareholding in consumer business. We believe that this will open up strategic possibilities.
By Motilal Oswal