Crompton’s results were operationally sound on the standalone front and overseas losses did moderate.
Support from standalone to overseas (debt pare-down, duplicate management structure), however, marred results. Such requirements would reduce with impending ZIV sale and formation of independent overseas business units/eventual sale.
Prospects for standalone business bode well and are more than factored in at CMP. We revise TP to Rs 65 on roll-forward .
Steady Q3FY17 has supported a strong 15-16% growth in revenues in 9MFY17 (both segments) and orders (driven by Industrial). CG continued to report improved segmental margin (especially in power systems) based on improved cost efficiency, good execution and right order picking.
It attributed overall weakness in EBITDA margin (6.6%, down 70 bps q-o-q) to managing overseas operations and expects its eventual sale/restructuring to improve domestic profitability. Outlook appears good, especially for the industrial business as it continues to outperform on the motors business and is yet to benefit from execution of recent railway orders.
Spare capacity and healthy order backlog bode well for the power systems business. On the overseas front, the company cited good progress on eliminating duplication of corporate structure and towards formation of five separate business units (Belgium, Hungary, Ireland, Indonesia, US). Apart from Indonesia, all other units are likely to get wound down or sold off.