CMP = Rs 232 (at the time of recommendation)
Price target: Rs 367
Key points:
- Crompton Greaves Ltd (CGL) has reported a 17.1% growth in its stand-alone revenues to Rs 1,159.5 crore for Q4FY2008. The revenues of the power system business grew by 8.3% to Rs 606.4 crore during the quarter. The revenues of the consumer products division increased by a strong 27.3% to Rs 352.2 crore. The profit before interest and tax (PBIT) margin improved across businesses save the consumer products business whose margin declined by 90 basis points to 10.5%.
- The operating profit of the company as a whole grew by 36.9% to Rs 156.6 crore. The sharp increase in the operating profit margin (OPM; up 200 basis points) came in as a positive surprise. The OPM improved mainly on account of a reduction in the raw material cost as a percentage of sales which declined by 230 basis points to 69.1%.
- The interest charge declined by 26.5% to Rs 7.4 crore and the depreciation charge dropped by 34.7% to Rs 7.4 crore. Consequently, the net profit grew by 47.4% to Rs 103.1 crore. On a consolidated basis, the group's turnover was Rs 2,020.7 crore during the quarter. The OPM stood at 13.6% whereas the net profit was at Rs 145.9 crore.
- In my view, CGL is well poised to benefit from the investment in the power transmission and distribution (T&D) space. Its international subsidiaries provide it access to international markets and also help it emerge as an integrated supplier for the products and services in the T&D space.
- I am maintaining a strong positive view on the company with a Buy recommendation and price target of Rs 367 over next 6 months.
