Edelweiss says maintain ‘Hold’ on Crompton Greaves; target price Rs 77

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Published: September 3, 2016 6:05:40 AM

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.

Stocks in focus todayCRG’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 and significant jump in trading profit in overseas entities.

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% y-o-y on low base and pick up in domestic execution; subsidiary EBITA 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.

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 and significant jump in trading profit in overseas entities.

We remain optimistic about CRG’s industrial growth given its favourable positioning in LT/HT motors. However, we believe, the company needs to focus on the power equipment portfolio given that more than 25% of market opportunities are not catered to by them.

Also, successful exit from ZIV and automation business remains a key. We assign18x PE to CRG’s FY18E earnings, in line with BSE S&P cap goods PE (25% discount historically). Maintain hold/sp with revised TP of R77 (earlier R65).

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