Crompton Greaves: Many headwinds ahead

Gloomy results, delays in monetising global power systems, subdued outlook

Crompton Greaves plummeted 22 per cent to a fresh 52-week low on Wednesday, led by multiple disappointments. First, the market was unhappy, given the company rejected an offer for its struggling global power systems business, to which loans worth Rs 1,000 crore had been advanced. As Crompton had an exclusive agreement with the tentative buyer, it now needs to scout for a new buyer, which might take time.

Kunal Sheth of Prabhudas Lilladher says with the offer rejected, it may take over a year for the firm to sell its stake in global operations. While the Street was also unhappy on the lack of clarity on listing and the December quarter performance of the recently demerged consumer products business, the current promoters have little to do with it, given they exited the business last April.

The operationally weak December quarter results and muted outlook impacted sentiments further. Weak show in the global power systems business pulled down consolidated revenues of the segment (Rs 1,591 crore) by 19 per cent over a year. Stress in the power systems segment was visible even in the stand-alone business, as revenue dipped 11 per cent, pulling the total stand-alone revenue down five per cent over a year. Given the lacklustre business environment, the segment’s performance isn’t surprising. Profits declined 60 per cent over a year. Much hinges on the industrial system business, which saw its Q3 revenues rise six per cent over a year to Rs 407 crore. Industrial systems business accounts for 41 per cent of stand-alone revenues and 22 per cent of consolidated revenues. Overall, consolidated operating profit dipped 86 per cent overt a year (Rs 9 crore), while net loss (excluding exceptional items) widened. While consolidated sales was 36 per cent lower than the Bloomberg estimates, analysts were expecting a net profit of Rs 48.5 crore in Q3.

With the order inflow and order book in Q3 dipping 13 per cent and eight per cent to Rs 2,094 crore and Rs 7,954 crore, respectively, near-term prospects are not encouraging. “Right now, we don’t have much idea of what’s ahead of Crompton Greaves, as a lot of management bandwidth has been spent on selling foreign business,” says Sheth.

Most analysts are either ‘neutral’ or ‘bearish’ for now.