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The Crompton Greaves stock moved up 14 per cent on Thursday. The trigger for the jump is the board’s proposal to demerge the consumer products business into a separate listed company. The investors’ thumbs-up to the demerger proposal is understandable.
The consumer products business, a part of the company’s standalone operations (35-40 per cent of standalone revenues), has been doing quite well. But contributing only about 20 per cent to the company’s consolidated revenue, it has been overshadowed by the lacklustre performance of the power and industrial segments in recent times.
So, a demerger could help the consumer business get better valuations in the market. For the year ended March 2014, profit in the consumer products segment grew a healthy 21.5 per cent to ₹3,37.5 crore. The segment is also the only one with double-digit margins, with operating margin coming in at almost 12 per cent.
The company has also expanded its dealer reach during the last year and set up exclusive retail stores for consumer products; this has helped improve its market share. Several new products were also launched. These initiatives will stand the demerged company in good stead.
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