Crompton Greaves’ (CRG) Q1FY17 EBIDTA came in line led by sharp margin improvement, while PAT was below estimate due to significant dip in other income. Key highlights were: consolidated power system sales catapulted 86% year-on-year (y-o-y) on low base and pick up in domestic execution; subsidiary EBIT margin at 44% was driven by unsustainable trading sale; domestic industrial segment on strong footing with 10%/35% y-o-y sales/EBIDTA spurt led by robust surge in LT/HT motors; while power systems orders grew a marginal 3.5%, industrial orders jumped 46% (y-o-y) led by uptick in railway orders.
Despite a temporary resurgence in power systems performance in Q1 and strong intake in industrial segment, we see key product gaps in power portfolio as a growth challenge.
CRG’s power systems segment, after 6-8 quarters, posted a sharp jump in revenue and profitability led by pick up in domestic execution, low base last year (Nashik disruption) and significant jump in trading profit in overseas entities.
While domestic power profitability seems to be stabilising, we believe top-line growth will be a key challenge given product gaps in several key areas like GIS, HVDC, SVC etc., which remains our key medium-term challenge for CRG.
We remain optimistic about CRG’s industrial growth given its favourable positioning in LT/HT
motors.