RESULT UPDATE

CROMPTON GREAVES
Industrial shines; exit of overseas business key
India Equity Research| Engineering and Capital Goods

Crompton Greaves (CRG) Q1FY17 EBIDTA came in line led by sharp

margin improvement, while PAT was below estimate due to significant
dip in other income. Key highlights were: 1) consolidated power system
sales catapulted 86% YoY on low base and pick up in domestic execution;
2) subsidiary EBIT margin at 44% was driven by unsustainable trading
sale; 3) domestic industrial segment on strong footing with 10%/35% YoY
sales/EBIDTA spurt led by robust surge in LT/HT motors; 4) while power
systems orders grew a marginal 3.5%, industrial orders jumped 46% YoY
led by uptick in railway orders. Despite a temporary resurgence in power
systems performance in Q1 and strong intake in industrial segment, we
see key product gaps in power portfolio as a growth challenge. Maintain
HOLD on limited upside.

EDELWEISS 4D RATINGS
Absolute Rating

HOLD

Rating Relative to Sector

Performer

Risk Rating Relative to Sector

Medium

Sector Relative to Market

Overweight

MARKET DATA (R: CROM.BO, B: CRG IN)

CMP

: INR 83

Target Price

: INR 77

52-week range (INR)

: 89 / 39

Share in issue (mn)

: 626.7

M cap (INR bn/USD mn)

: 52 / 779

Avg. Daily Vol.BSE/NSE(000) : 11,351.8

Is strong performance in power systems sustainable?

CRGs power systems segment, after 6-8 quarters, posted a sharp jump in revenue and
profitability led by pick up in domestic execution, low base last year (Nashik disruption)
and significant jump in trading profit in overseas entities. While domestic power
profitability seems to be stabilising, we believe top-line growth will be a key challenge
given product gaps in several key areas like GIS, HVDC, SVC etc., which remains our key
medium-term challenge for CRG.

SHARE HOLDING PATTERN (%)

Current

Q3FY16

Q2FY16

Promoters *

34.4

34.4

34.4

MF's, FI's & BKs

33.9

32.2

31.0

FII's

17.4

13.9

18.1

Others

14.4

19.6

16.5

* Promoters pledged shares

(% of share in issue)

Domestic industrial business on strong footing; ZIV sale key

Domestic industrials segment posted 10%/35% YoY revenue/EBIT spurt driven by
healthy uptick in the motors business. However, profitability of industrial drives and
large rotating machines remains a challenge with sustained EBIT loss. Management
highlighted that CRG has shortlisted buyers for ZIV and expects its sale and that of US
automation to be concluded by October 2016.

Outlook and valuations: Cautious; maintain HOLD

1.4

PRICE PERFORMANCE (%)

Stock

Nifty

EW Capital
Goods Index

1 month

6.1

1.7

3 months

26.1

7.7

5.2

12 months

40.9

10.2

(5.8)

We remain optimistic about CRGs industrial growth given its favourable positioning in
LT/HT motors. However, we believe, the company needs to focus on the power
equipment portfolio given that more than 25% of market opportunities are not catered
to by them. Also, successful exit from ZIV and automation business remains a key. We
assign18x PE to CRGs FY18E earnings, in line with BSE S&P cap goods PE (~25%
discount historically). Maintain HOLD/SP with revised TP of INR77 (earlier INR65).
Financials (Consolidated)
Year to March Q1FY17 Q1FY16 % change Q4FY16 % change
Net revenues
EBITDA

14,238 10,275

38.6

FY16

FY17E

(INR mn)
FY18E

16,699

(14.7)

56,052

56,497

61,884

1,206

(137)

NM

1,359

(11.3)

3,671

4,711

5,527

Adj. profit

401

(626)

NM

819

NM

1,297

1,958

2,851

Dil. EPS (INR)

0.6

(1.0)

NM

1.3

NM

2.1

3.1

4.5

40.2

26.7

18.3

2.9

4.2

5.8

Diluted P/E (x)

ROAE (%)
Edelweiss Research is also available on www.edelresearch.com,
Bloomberg EDEL <GO>, Thomson First Call, Reuters and Factset.

Amit Mahawar
+91 22 4040 7451
amit.mahawar@edelweissfin.com

Swarnim Maheshwari
+91 22 4040 7418
swarnim.maheshwari@edelweissfin.com

August 31, 2016

Edelweiss Securities Limited

(1.7)

Engineering and Capital Goods

Q1FY17 result: Key conference call takeaways

Power systems India revenue growth was on a lower base due to shutdown in Nasik
factory last year.

The pace of collection of debtors has improved significantly by 14 days from Q4 level in
power systems India business.

In industrial systems, railways business sales was a laggard, though order intake
improved significantly to more than INR1.5bn (up 46% YoY). LT and HT motors posted
strong growth
and management indicated that it has outperformed the industry growth rate once
again in LT and HT motors.

Margin in the railways business depends on volumes as electronics costs fall

disproportionately once volumes pick up.

ZIV revenue stood at EUR24mn with EBITDA of EUR3.5mn and a positive PAT.

Unallocable expenses should fall to half post sale of international and ZIV businesses.

Management guidance of INR3.25bn PAT by FY18 looks ambitious given delay in certain
events like ZIV & automation business sale.

FY18E utilisation is targeted to reach 75-80% across businesses.

CRG expects to be net debt-free by F17 end, once ZIV & automation business sale is
concluded.

Management highlighted improving pricing in the domestic transformer industry.

Table 1: Segmental Snapshot - Consolidated

Particulars
Q1FY17 Q1FY16 % Ch YoY
Segmental Revenues
Power Systems
7,025
3,762
86.8
% of revenue
49.5
36.6
Industrial Systems
5,086
4,568
11.4
% of revenue
35.8
44.4
Automation Systems
2,079
1,949
6.7
% of revenue
14.7
19.0
Total
14,190
10,278
38.1
Segment ResultsPower Systems
EBIT margin (%)
Industrial Systems
EBIT margin (%)
Automation Systems
EBIT margin (%)
Total
Blended EBIT margin

756
10.8
395
7.8
(6)
(0.3)
1,144
8.1

(327)
(331.4)
-8.7
272
45.1
6.0
2
(405.0)
0.1
(53) (2,274.7)
(0.5)

FY16

FY15 % Ch YoY

24,947
47.2
19,294
36.5
8,638
16.3
52,879

27,861
50.5
18,336
33.2
8,996
16.3
55,193

(10.5)

1,877
7.5
1,389
7.2
(61)
(0.7)
3,204
6.1

4,018
14.4
1,103
6.0
74
0.8
5,195
9.4

(53.3)

5.2
(4.0)
(4.2)

25.9
NM
(38.3)

Source: Company, Edelweiss research

Edelweiss Securities Limited

Crompton Greaves
Table 2: Segmental Snapshot - Standalone
Particulars
Q1FY17 Q1FY16 % Ch YoY
Segmental Revenues
Power Systems
6,089
3,900
56.1
% of revenue
58.4
44.3
Industrial Systems
4,217
3,817
10.5
% of revenue
40.4
43.4
Automation Systems
125
1,082
(88.5)
% of revenue
1.2
12.3
Total
10,430
8,799
18.5
Segment Results
Power Systems
EBIT margin (%)
Industrial Systems
EBIT margin (%)
Automation Systems
EBIT margin (%)
Total
Blended EBIT margin

341
5.6
462
10.9
(12)
(9.7)
791
7.6

(241)
-6.2
343
9.0
(29)
(2.7)
73
0.8

(241.8)
34.8
NM
989.3

FY16

FY15 % Ch YoY

22,898
57.6
16,112
40.5
749
1.9
39,759

26,960
63.5
14,971
35.3
509
1.2
42,440

(15.1)

1,170
5.1
1,743
10.8
(105)
(14.0)
2,808
7.1

1,995
7.4
1,507
10.1
103
20.3
3,606
8.5

(41.4)

7.6
47.4
(6.3)

15.6
NM
(22.1)

Source: Company, Edelweiss research

Edelweiss Securities Limited

Engineering and Capital Goods

Financial snapshot-Consol
Year to March
Net revenues
Raw material
Staff costs
Other operating expenses
Total expenditure
EBITDA
Depreciation
EBIT
Other income
Interest
Add: Exceptional items
Profit before tax
Tax
Minority interest
Associate profit share
Reported net profit
Adjusted Profit
Equity capital(FV INR 2)
Diluted shares (mn)
Diluted EPS (INR)
As % of net revenues
Direct costs
Employee cost
Other expenses
EBITDA
Depreciation
Interest expenditure
Tax rate

(INR mn)
Q1FY17
14,238
9,782
1,665
1,585
13,032
1,206
603
602
176
307
472
68
1
(2)
401
401
1,254
627
0.6

Q1FY16
10,275
6,975
1,690
1,748
10,412
(137)
603
(740)
425
153
(11)
(479)
166
8
(637)
(626)
1,254
627
(1.0)

68.7
11.7
11.1
8.5
4.2
2.2
14.3

67.9
16.4
17.0
(1.3)
5.9
1.5
(34.7)

% change
38.6
40.3
(1.4)
(9.3)
25.2
(983.2)
0.0
(181.4)
(58.6)
100.2
(100.0)
(198.5)
(59.3)
300.0
NA
NM
NM

NM)

Q4FY16
16,699
11,653
1,733
1,954
15,340
1,359
728
631
257
240
397
1,045
(182)
6
(4)
1,216
819
1,254
627
1.3

69.8
10.4
11.7
8.1
4.4
1.4
(17.4)

% change
(14.7)
(16.1)
(3.9)
(18.9)
(15.0)
(11.3)
(17.2)
(4.5)
(31.5)
27.6
(100.0)
(54.8)
(137.2)
(78.9)
NA
NM
NM

NM

FY16
56,052
35,537
6,549
10,295
52,381
3,671
2,558
1,113
1,116
814
1,416
144
(13)
12
1,297
1,297
1,254
627
2.1

FY17E
56,497
37,505
7,004
7,276
51,786
4,711
1,832
2,879
863
809
2,933
997
(2)
20
1,958
1,958
1,254
627
3.1

FY18E
61,884
40,951
7,480
7,925
56,356
5,527
1,885
3,642
927
284
4,286
1,457
(3)
20
2,851
2,851
1,255
627
4.5

63.4
11.7
18.4
6.5
4.6
1.5
10.2

66.4
12.4
12.9
8.3
3.2
1.4
34.0

66.2
12.1
12.8
8.9
3.0
0.5
34.0

Edelweiss Securities Limited

Crompton Greaves
Company Description
Mumbai-based CRG, a part of the B. M. Thapar Group, is a pioneer in the management and
application of electrical energy. It is primarily engaged in designing, manufacturing, and
marketing high-technology electrical products and services related to power generation,
transmission, distribution, and executing turnkey projects. The companys business
comprises two segments viz. power systems and industrial systems. Recently , the consumer
business was sold.

Investment Theme
Industrial revenues offers 2x potential in 2-3 yrs; Consumer focus yielding results
Recent capex in large motors & drives in Bhopal imparts capability to double overall
industrial revenues from 400 mn USD to 800 mn USD over next 3 years. Also, with
management focus on leveraging its solid brand name, consumer profitability continues to
surprise the street in last 2-3 qtr.
Simplification in corporate structure and better focus on the more lucrative domestic
business by exiting from the overseas businesses will lead to overall improvement in profile
of the company. Also, Balance sheet deleveraging post the sale of its international Power
business is a positive.

Key Risks
Major slowdown in the T&D spending in key markets like India and Europe can potentially
impact our growth assumptions. Also, deferment of sale of overseas businesses will hit the
profitability of the company.

Edelweiss Securities Limited

Engineering and Capital Goods

Financial Statements-Consolidated
Key Assumptions
Year to March

Income statement
FY15

FY16

FY17E

FY18E

Macro
GDP(Y-o-Y %)
Inflation (Avg)

7.2
5.9

7.4
4.8

7.9
5.0

8.3
5.2

Repo rate (exit rate)

7.5

6.8

6.0

6.0

61.2

65.0

67.5

67.0

(3.2)

(16.3)

4.9

9.5

B) Power system -Exp

3.0

(96.6)

16.5

7.9

D) Indus. System

1.0

7.1

4.9

14.5

A) Power system

11.0

(20.0)

10.0

B) Power system

6.5

(80.0)

C)Indus. System

10.0

(10.0)

USD/INR (Avg)

Tax rate (%)

Total no. of employees
Employee cost per head
Capex (INR mn)

FY15

FY16

FY17E

FY18E

55,054
37,062

56,052
35,537

56,497
37,505

61,884
40,951
7,480

Employee costs

6,689

6,549

7,004

Other Expenses

6,211

10,295

7,276

7,925

49,962

52,381

51,786

56,356

EBITDA

5,092

3,671

4,711

5,527

Depreciation

2,447

2,558

1,832

1,885

EBIT

2,645

1,113

2,879

3,642

Add: Other income

714

1,116

863

927

15.0

Less: Interest Expense

827

814

809

284

(75.0)

10.0

Add: Exceptional items

1,023

(530)

16.0

25.0

Profit Before Tax

3,554

886

2,933

4,286

Less: Provision for Tax

(104)

144

997

1,457

(13)

(13)

(2)

(3)

14

12

20

20

Reported Profit

3,686

767

1,958

2,851

Exceptional Items

1,023

(530)

Adjusted Profit

Company
A) Power system -Dom

Year to March
Income from operations
Direct costs

(INR mn)

(2.9)

16.3

34.0

34.0

6,634

4,312

4,399

4,487

788,804

863,740

915,565

970,499

(1,351)

(3,215)

1,151

1,151

Total operating expenses

Minority interest
Associate profit share

2,663

1,297

1,958

2,851

Diluted shares o/s (mn)

627

627

627

627

Adj. Diluted EPS (INR)

4.2

2.1

3.1

4.5

Dividend per share (DPS)

0.8

0.1

0.5

0.5

Common size metrics

Year to March

FY15

FY16

FY17E

FY18E

EBITDA margins
EBIT margins

9.2
4.8

6.5
2.0

8.3
5.1

8.9
5.9

Net Profit margins

4.8

2.3

3.5

4.6

Growth ratios (%)

Year to March
Revenues
EBITDA
Adjusted Profit

FY15

FY16

FY17E

FY18E

(59.6)
(16.8)

1.8
(27.9)

0.8
28.3

9.5
17.3

75.3

(51.3)

50.9

45.6

Edelweiss Securities Limited

Crompton Greaves
Balance sheet

(INR mn)

Cash flow metrics

FY15

FY16

FY17E

FY18E

FY15

FY16

FY17E

FY18E

Share capital
Reserves & Surplus

1,254
41,825

1,254
44,718

1,254
46,310

1,254
48,796

Operating cash flow

Investing cash flow

(6,723)
4,285

(608)
4,320

5,009
(1,151)

1,760
(1,151)

Shareholders' funds

43,078

45,972

47,564

50,050

Financing cash flow

1,572

(2,224)

(5,673)

(148)

(2)

(5)

Net cash Flow

(866)

1,488

(1,815)

460

Short term borrowings

6,573

6,370

6,871

7,372

Capex

1,351

3,215

(1,151)

(1,151)

Long term borrowings

12,772

5,990

990

990

Dividend paid

(895)

(13)

(365)

(365)

Total Borrowings

19,345

12,360

7,861

8,362

Sources of funds

68,094

61,465

58,555

61,540

Profitability and efficiency ratios

Tangible assets
Intangible Assets

55,588
31,874

24,061
15,007

25,061
14,804

26,061
14,554

Year to March

1,042

682

732

782

As on 31st March

Minority Interest

CWIP (incl. intangible)

Year to March

FY15

FY16

FY17E

FY18E

ROAE (%)
ROACE (%)

6.7
5.6

2.9
3.7

4.2
6.6

5.8
8.0

36,775

37,904

37,223

36,489

Inventory Days

146

97

58

57

Total net fixed assets

9,451

11,084

10,556

10,023

Debtors Days

221

169

140

142

Non current investments

2,751

2,072

2,072

2,072

Payable Days

238

175

142

137

Cash and Equivalents

8,437

7,978

6,163

6,624

Cash Conversion Cycle

130

90

57

62

Inventories

13,001

5,850

6,165

6,732

Current Ratio

1.8

2.0

1.8

1.9

Sundry Debtors

30,880

20,882

22,503

25,545

Debt/EBITDA (x)

3.8

3.4

1.7

1.5

698

239

258

279

Fixed asset turnover (x)

1.5

1.7

2.2

2.5

Other Current Assets

12,662

8,591

8,591

8,591

Debt/Equity (x)

0.4

0.3

0.2

0.2

Current Assets (ex cash)

57,240

35,562

37,517

41,146

Adjusted Debt/Equity

0.4

0.3

0.2

0.2

Sundry creditors

20,554

13,579

15,619

15,146

Interest Coverage Ratio

3.2

1.4

3.6

12.8

Provisions

16,557

8,474

8,802

9,646

Total Current Liab

37,110

22,053

24,421

24,792

Operating ratios

Net Curr Assets-ex cash

20,131

13,509

13,097

16,355

Year to March

4,377

2,528

2,528

2,528

68,094

61,465

58,555

61,540

67.1

71.7

74.1

78.0

Year to March

FY15

FY16

FY17E

FY18E

Reported Profit
Add: Depreciation

3,686
2,447

767
2,558

1,958
1,832

2,851
1,885

Total Fixed Assets

Loans & Advances

Net Deferred tax

Uses of funds
BVPS (INR)
Free cash flow

Interest (Net of Tax)

(INR mn)

851

681

534

187

(2,741)

(7,720)

273

94

Less: Changes in WC

10,967

(3,106)

(412)

3,258

Operating cash flow

(6,723)

(608)

5,009

1,760

Less: Capex

(1,351)

(3,215)

1,151

1,151

Free Cash Flow

(5,373)

2,607

3,858

609

Others

FY15

FY16

FY17E

FY18E

Total Asset Turnover

Fixed Asset Turnover

0.9
1.5

0.9
1.7

0.9
2.2

1.0
2.5

Equity Turnover

1.4

1.3

1.2

1.3

Year to March

FY15

FY16

FY17E

FY18E

Adj. Diluted EPS (INR)

Y-o-Y growth (%)

4.2
75.3

2.1
(51.3)

3.1
50.9

4.5
45.6

Valuation parameters

Adjusted Cash EPS (INR)

8.2

4.8

6.0

7.6

19.6

40.2

26.7

18.3

P/B (x)

1.2

1.2

1.1

1.1

EV / Sales (x)

1.1

1.0

1.0

0.9

EV / EBITDA (x)

2.1

1.2

0.4

0.3

Dividend Yield (%)

Basic EPS

1.0
4.2

0.1
2.1

0.6
3.1

0.6
4.5

Diluted P/E (x)

Edelweiss Securities Limited

Engineering and Capital Goods

Additional Data
Directors Data
G Thapar
Madhav Acharya
Shirish Apte
S Labroo
V Von Massow

Chairman
Executive Director & CFO
Non Executive & Independent Director
Non Executive & Independent Director
Non Executive & Independent Director

KN Neelkanth
O Goswami
S Bayman
Coletter Lewiner
Ramni Nirula

Managing Director
Non Executive & Independent Director
Non Executive & Independent Director
Non Executive & Independent Director
Non Executive & Independent Director

Auditors - Sharp Tannan & Co.

*as per last annual report

Holding Top10
Perc. Holding
34.37
9.26
5.24
2.65
2.09

Avantha holdings ltd

Hdfc asset managemen
Life insurance corp
Wgi em smaller co fu
Hdfc life insurance

Perc. Holding
10.92
8.27
3.91
2.12
1.94

Birla sun life asset

Reliance capital tru
Norges bank
Samena special situa
Vanguard group

*in last one year

Bulk Deals
Data
15 Mar 2016
14 Mar 2016
14 Mar 2016
05 Feb 2016

Acquired / Seller
Goldman Sachs India Fund Ltd
Wgi Emerging Markets Smaller Companies Fund Llc
J P M S L A/C Copthall Mauritius Investment Ltd
Stichting Pensioenfonds Abp

B/S
Sell
Buy
Sell
Sell

Qty Traded
4600646
8622451
5936587
4431926

Price
43.49
148.38
148.00
125.00

*in last one year

Insider Trades
Reporting Data

Acquired / Seller

B/S

Qty Traded

No Data Available

*in last one year

Edelweiss Securities Limited

RATING & INTERPRETATION

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Thermax
VA Tech Wabag

REDUCE

SP

HOLD

None

None

REDUCE

SP

Techno Electric & Engineering

BUY

SP

Triveni Turbine

BUY

None

None

Voltas

BUY

SP

ABSOLUTE RATING
Ratings

Expected absolute returns over 12 months

Buy

More than 15%

Hold

Between 15% and - 5%

Reduce

Less than -5%

RELATIVE RETURNS RATING

Ratings

Criteria

Sector Outperformer (SO)

Stock return > 1.25 x Sector return

Sector Performer (SP)

Stock return > 0.75 x Sector return

Stock return < 1.25 x Sector return

Sector Underperformer (SU)

Stock return < 0.75 x Sector return

Sector return is market cap weighted average return for the coverage universe
within the sector

RELATIVE RISK RATING

Ratings

Criteria

Low (L)

Bottom 1/3rd percentile in the sector

Medium (M)

Middle 1/3rd percentile in the sector

High (H)

Top 1/3rd percentile in the sector

Risk ratings are based on Edelweiss risk model

SECTOR RATING
Ratings

Criteria

Overweight (OW)

Sector return > 1.25 x Nifty return

Equalweight (EW)

Sector return > 0.75 x Nifty return

Underweight (UW)

Sector return < 0.75 x Nifty return

Sector return < 1.25 x Nifty return

Edelweiss Securities Limited

Engineering and Capital Goods

Edelweiss Securities Limited, Edelweiss House, off C.S.T. Road, Kalina, Mumbai 400 098.
Board: (91-22) 4009 4400, Email: research@edelweissfin.com
Manoj Bahety
Deputy Head Research
manoj.bahety@edelweissfin.com

Coverage group(s) of stocks by primary analyst(s): Engineering and Capital Goods

ABB India, Bharat Heavy Electricals, Bharat Forge, Bajaj Electricals, Crompton Greaves, Greaves Cotton, Havells India, KEC International, Cummins India,
Kalpataru Power, Larsen & Toubro, Praj Industries, Ramkrishna Forgings, Siemens, TD Power Systems, Techno Electric & Engineering, Thermax, Triveni
Turbine, VA Tech Wabag, Voltas

Recent Research
Date

Company

Title

Price (INR)

Recos

Bajaj
Electricals

EPC holds forth; interim

hurdles linger; Result Update

Hold

Kalpataru
Power

A slow start, but growth

matrix intact;
Result Update

Buy

Ramkrishna Toeing the line; robust growth

Forgings
potential;
Result Update

Buy

Distribution of Ratings / Market Cap

Rating Interpretation

Edelweiss Research Coverage Universe

Rating Distribution*
* - stocks under review
> 50bn

Hold

158

59

Reduce

Rating

Total

12

229

Between 10bn and 50 bn

< 10bn

156

62

11

Expected to

Buy

appreciate more than 15% over a 12-month period

Hold

appreciate up to 15% over a 12-month period

Reduce

depreciate more than 5% over a 12-month period

One year price chart

100
80
60
40
20

Aug-16

Jul-16

Jun-16

May-16

Apr-16

Mar-16

Feb-16

Jan-16

Dec-15

Nov-15

Oct-15

Aug-15

(INR)

Market Cap (INR)

Buy

Crompton Greaves

10

Edelweiss Securities Limited

Crompton Greaves
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