Crompton Greaves: Powering on

With the acquisition of the French repair and maintenance firm Sonomatra, Crompton Greaves now has four acquisitions under its belt and the Rs 6,833-crore engineering firm is among the world’s top ten transformer makers. In early June 2008, it acquired Sonomatra, a firm that repairs power transformers for ¤1.3 million. With this, Crompton strengthens its capabilities in the services segment of the transmission and distribution space.

Indeed, it is the improved performance of the firm’s overseas subsidiaries that has driven the strong results posted in the June 2008 quarter. The firm turned in a strong growth in revenues of 34 per cent to Rs 2,034 crore with the international subsidiaries rising 52 per cent y-o-y to Rs 950 crore.

While the higher replacement demand in Europe meant more orders, the appreciation of the euro by 17 per cent also helped push up revenues . The better utilisation of capacities at its overseas units—- Pauwels, Ganz and Microsol —- have helped Crompton cash in on the growing demand for power systems. The domestic business didn’t fare too badly either: revenues were up 21 per cent y-o-y to Rs 1,080 crore, with both industrial systems and consumer products divisions chipping in.

As such, operating profit margins were up 220 basis points to 10.2 per cent driven by an expansion in margins for the overseas business by a smart 450 basis points. A part of that was due to the better performance of Ganz, which had seen losses in the June 2007 quarter while efficiencies in procuring raw material helped bring down costs.

Crompton’s order backlog is strong at of Rs 3,580 crore for the international operations and Rs 6,000 crore for the firm as a whole and thus there is revenue visibility for the next 12 months. Crompton is expected to grow consolidated revenues by around 24 per cent to Rs 8,400 crore in FY09 with net profit growing at 23-24 per cent to Rs 500 crore.

The earnings per share (eps) is estimated at around Rs 13-14. The stock has underperformed the market this year falling by 33 per cent. At the current price of Rs 260, it trades at 20 times its estimated FY09 estimates and is attractively valued.