Crompton Greaves: The outlook improves

The Crompton Greaves management says the outlook for business is better, both at home and overseas, and that it will not lower its guidance.

Some time ago, it had toned down the guidance indicating that revenues in the home market would grow between 12 and 14 per cent, but that it seems will not be revised further. The company’s order book doesn’t seem to have grown too much over the past year — the consolidated order book stands at Rs 6,300 crore of which two-thirds belong to the power division and the rest to the industrial products division.

The management, however, says orders are coming in though the benefits will be felt only in 2010-11. Analysts believe revenues from the company’s international subsidiaries are likely to grow only in single digits this year.

Crompton’s June 2009 quarter numbers were not too bad — the stand-alone operating margins expanded 210 basis points to 14.8 per cent, driven by the deflation in the prices of raw materials. However, stand-alone revenues were up just 8.4 per cent while the rise in consolidated revenues of Rs 2,200 crore, was even lower at 7.6 per cent.

Crompton plans to list Avantha Power over the next 12-18 months. The Street had been somewhat upset when Crompton announced plans to pick up 41 per cent stake in Avantha Power for Rs 225 crore and the stock lost nearly 10 per cent on a single day.

Avantha, a promoter group company, was valued at Rs 550 crore and analysts had observed that while there was no doubt a good long term story in power, the cash on the company’s books — around Rs 300 crore — could have been put to use in the core business.

At Rs 312, the Crompton stock trades at close to 15 times estimated 2010-11 earnings. Since, earnings are expected to grow at a compounded 17 per cent between 2009-11, the stock isn’t particularly cheap.