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Crompton goes for strategic change in biz model

Power equipment maker chants 'One, Fast & Lean CG' mantra to tackle slowdown, take on Chinese, Korean rivals

Chandan Kishore Kant  |  Mumbai 

Crompton Greaves, part of the industrial conglomerate Avantha group, is working on re-modelling itself to tackle factors which struck the company in the previous financial year.

Hit by the global slowdown in 2011-12 amid intensified competition, mainly from Chinese and South Korean firms, company's shareholders lost half of their wealth during the year as shares tanked five times more than the benchmark indices.

Gautam Thapar, group's chairman, said in a letter to shareholders that company require a strategic change of gear and must "leverage on research and development (R&D) more than ever before."

"What Crompton Greaves 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'.." wrote Thapar. "All this requires us to completely eschew notions of geographic and plant-centric silos. The DNA of selling must be one where the customers come first; not where the factory is.'Fast CG' requires your company to react very quickly to the business opportunities," he added.

According to him, gone are the days when power equipment manufacturers enjoyed higher prices and margins which were the norm for half a decade leading up to 2009-10. "will have to be more productive and competitive; and focus on bundling equipment as a part of selling end-to-end solutions. Your company is no exception to this reality," conveyed Thapar in his letter.

In FY12, Crompton's net profit nose-dived to Rs 505 crore, down 27 per cent compared with Rs 694 crore in the corresponding previous year. After a decade of growing revenues, there was a sudden break in the momentum. Moreover, during the first quarter of the current financial year too company's net profit as well as net profit margins continued to decline against the same period last year.

During the tough market conditions, shares of Crompton were hit badly. In FY12, while domestic benchmark indices lost 10 per cent, stocks of power equipment maker lost half of the value as they had a free fall from Rs 272.95 to Rs 138.15. Further, it was not the end as counter tanked further to hit its 52-weeks low of Rs 102.40 on the Bombay Stock Exchange in May. Though since then, it has shown some strength and closed on Wednesday at Rs 118.70, but market experts continue to stay away from the counter.

According to them both Indian and global transmission and distribution markets are facing headwinds, and the economic weakness in Europe and the strife in West Asia have made it worse. Crompton has its 75th annual general meeting on 3 August.

Though FY12 was a difficult year for the company, Thapar assured shareholders that "the re-modelling has begun. Bear with CG, because the platform for creating a global enterprise has commenced."

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First Published: Thu, August 02 2012. 13:32 IST