CG Power surges 4% in weak market, hits new high on strong biz outlook

Thus far in the calendar year 2023, the stock has rallied 59 per cent as compared to 6 per cent rise in the S&P BSE Sensex

Shares of CG Power and Industrial Solutions hit a new high of Rs 429.80, surging 4 per cent on the BSE in Friday's intra-day trade, in an otherwise a weak market, on a robust and promising business outlook. In comparison, the S&P BSE Sensex was down 0.40 per cent at 64,894 at 11:32 AM.

Thus far in the calendar year 2023, the stock has rallied 59 per cent as compared to 6 per cent rise in the benchmark index. It has skyrocketed 9,243 per cent from a level of Rs 4.6 touched in March 2020.

CG Power is engaged in development and distribution of electrical equipment such as transformers, reactors and other control equipment. It also manufactures industrial motors and pumps, and communication systems.

For the June quarter (Q1-FY24), CG Power had reported profit before interest of Rs 256 crore, the highest-ever in recent times. Earnings before interest, taxes, depreciation, and amortization (Ebitda) margin, meanwhile, improved 360 bps to 15.7 per cent. Profit after tax jumped 56 per cent to Rs 192 crore as against Rs 123 crore in the year-ago quarter. As on June 30, the company has order book position of Rs 4,909 crore, 39 per cent higher over previous year quarter.

Ever since coming under the majority ownership of Tube Investments (Murugappa Group) in November 2020, CG has completed the second full year of operations in FY23. While FY22 marked the period of stabilisation across multiple facets, FY23 witnessed the company’s switch towards actualisation of its true potential.

With improving volumes, product mix, capacity utilisation, and share in targeted market segments, the company initiated the capex phase consisting of two rounds of investments, the first aimed at debottlenecking and the second aimed at new additions.

"While the operating environment continues to be volatile, Capital Goods (acronymed incidentally as CG) sector will continue to be the sweet spot of manufacturing segment. CG is poised to reap rich dividends of being at the right place at the right time and most importantly in the right shape," the company said in its FY23 annual report.

Three clear enablers of a positive growth for CG include steady volume growth that would be supported by an intense export focus, sustained margin protection that would emanate from efficiency measures, and continued expansion of the playing turf that shall result from new initiatives being seeded towards sunrise areas such as EVs, Railways, Consumer Durables, etc, the company said.

"With a focus on reducing its debt, the company has achieved a debt-free status. This, along with product diversification and upgraded manufacturing facilities, is expected to enhance its order book and support growth. The Government of India in its Budget declared plans to increase the capital expenditure by 33 per cent to Rs 10 trillion for infrastructure development. The plan is expected to be a major growth driver for the company," according to analysts at Geojit Financial Services.