Crompton Greaves profits shrank for the first time since 2005, leading to negative investor sentiment and a fall in share price. Crompton Greaves CEO Laurent Demortier shares his vision for a turnround, in an emailed interview with Aneesh Phadnis . Edited excerpts.
There is a drop in profits on a consolidated level in 2011-12, indicating that Crompton Greaves’ international subsidiaries have not made a profit in almost all the four quarters in 2011-12. What are the reasons for it?
All businesses in our international operations have grown in sales significantly. Overall, sales growth was 15.5 per cent. Growth was mainly driven by a large increase in system activities in the power sectors, especially by our unit in the US. Those system activities (projects) generated low profitability and consumed large quantities of resources. They were terminated in December 2011. Employee and process costs increased as a result of the acquisition of QEI in the US (automation sector) and Emotron in Europe (variable speed drives).
Was Crompton Greaves impacted by deferred order? What has been the impact of dumping by the Chinese and Korean companies on the overall business?
We are not seeing the impact of deferrals in orders. In fact, in 2011-12, our orders on a consolidated basis increased by 15 per cent to Rs 10,264 crore, and our order backlog of Rs 8,366 crore at the end of March 2012 is up 17 per cent. Going forward, we expect robust order intake in all businesses. The power business in India is driven by orders from the Power Grid Corporation of India in the EHV and UHV transmission sector and outside India by the development of new transmission and distribution needs due to renewables. Crompton Greaves is a provider of electrical systems of locomotives. The consumer business should also benefit from the increased portfolio offering. The growth will be globally supported by the opening of new sales capacity in growing regions such as Brazil and West Asia.
Regarding dumping practices, we are committed to fighting those and use all legal means to defend CG’s interests.
Analysts also refer to non- optimal utilisation in some factories abroad as a reason for the losses. Any comment?
Our current rate of utilisation of manufacturing capacity has been high in almost all sites. However, all our factories operate today as independent units and, therefore, some part of the factory might not be optimally used. We have now created independent product lines, with a common management of factories producing the same range of products ( i.e. power transformers) . This should enable us to optimise the overall supply chain and the utilisation of our manufacturing assets.
What is your long-term strategy to improve profitability?
Our long-term strategy is three-pronged: One, to integrate the power business unit, which had grown as eight acquisitions abroad took place between 2005 and 2011. We need to leverage the scale produced by those acquisitions and fully integrate our operations. Second, we need to internationalise the industrial business unit, which today depends mainly on the Indian market. Third, we need to consolidate the consumer business, which is an India-focused business leveraging the Crompton brand.
On the operational side, we have developed a comprehensive three-year plan; its objective is to improve profitability by 450 basis points in the next three years. The plan is on four strategic levers: Offering, sourcing, manufacturing footprint and continuous improvement. We have already identified more than 555 major projects across the companies to achieve this objective.