Crompton goes for strategic change in business model

Crompton Greaves, part of industrial conglomerate Avantha Group, is working on re-modelling itself. Hit by the global slowdown and intensified competition, primarily from Chinese and South Korean firms, the company’s shareholders lost half their wealth in 2011-12. And, the company’s shares tanked five times more than the benchmark indices.

In a letter to shareholders, Group Chairman Gautam Thapar stated the company required a strategic change of gear and “leverage on research and development more than ever before.”

“What Crompton Greaves (CG) witnessed in FY2012 was a brake. Your company has to rapidly leverage its global synergies. It has to be ‘One CG, fast CG, lean CG’….All this requires us to completely eschew notions of geographic and plant-centric silos. The DNA of selling must be one in which customers come first; not where the factory is. ‘Fast CG’ requires your company to react very quickly to business opportunities,” Thapar stated.

Gone were the days when power equipment manufacturers enjoyed higher prices and margins, the norm for half a decade up to 2009-10, he stated. “Companies will have to be more productive and competitive and focus on bundling equipment as part of selling end-to-end solutions. Your company is no exception to this reality,” he stated in the letter.

In 2011-12, Crompton’s net profit nosedived to Rs 505 crore, down 27 per cent from Rs 694 crore in the previous year. This followed a decade of increasing revenues. During the first quarter of the current financial year, the company’s net profit, as well as net profit margin (profit earned per rupee worth of goods sold or services rendered), continued to decline against the year-ago period.

Amid the difficult market conditions, Crompton shares were hit badly. In 2011-12, while domestic benchmark indices lost 10 per cent, stocks of the power equipment maker lost half their value, falling from Rs 272.95 to Rs 138.15. In May, the shares fell to a 52-week low of Rs 102.4 on the BSE. Since then, however, the stock has risen, closing at Rs 117.95 on the BSE on Thursday.

Market participants, however, continue to stay away from the counter. They say Indian and global transmission and distribution markets are facing headwinds and the economic woes in Europe, coupled with the conflict in West Asia, have worsened the situation.

Though 2011-12 was a difficult year for the company, Thapar assured shareholders “re-modelling has begun. Bear with CG, because the platform for creating a global enterprise has commenced.”

Crompton’s 75th annual general meeting is scheduled for Friday.