Comments
I-SEC
Crompton Greaves (Sell)
CMP: Rs 95.80
Target: Rs 76
We recommend a ‘Sell’ in the stocks of Crompton Greaves for the following reasons: i) continued weakness in the overseas power segment margins as the situation post restructuring has not improved and no guidance on FY14E margin further raises concern on outlook; ii) muted domestic power segment top-line as well as margins given weak order wins and higher proportion of project-related orders; and iii) sluggishness in consumer segment margins. We believe that the low-margin environment will linger in the near-term, as the issues are more structural in nature. While CGL’s top-line performance should be steady due to its decent order book, profitability will hinge on overseas operations turnaround, mix of products/ projects and pickup in orders from new businesses (renewables, automation and ‘smart’ products). We trim our estimates by 36 per cent and 38 per cent for FY14 and FY15 respectively due to apparent delay in the improvement in EU operations and weakness in the domestic power segment.
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