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Showing posts with label Crompon Greaves. Show all posts
Showing posts with label Crompon Greaves. Show all posts
Wednesday, May 11, 2016
Monday, April 4, 2016
Crompton Greaves gets a new lease of life
Crompton Greaves gets a new lease of life
A series of restructuring measures, including sale of its loss-making overseas power unit, has helped the company clear its debt of Rs 900 cr
Hamsini Karthik | Mumbai
April 4, 2016 Last Updated at 21:22 IST
Until mid-February, the stock market did not expect any noteworthy rebound from Crompton Greaves, the company owned by debonair businessman Gautam Thapar. Then came the much-awaited news on the sale of its international power business to First Reserve International, a private equity fund, for Rs 850 crore. It boosted sentiment around its stock, which now trades at Rs 48, drawing its value from the residual power and industrials businesses (also referred to as business-to-business or B2B operations).
Crompton Greaves Executive Director (finance) Madhav Acharya says that with the sale of its international business, which clocked revenue of Rs 4,800 crore in FY15, a large part of the issues the company faced attributable to its international business and its associated debt burden is being put to rest and that the company should clock revenues of Rs 6,500 crore in 2016-17.
Seen against the stand-alone revenues of FY15 (excluding the consumer business), the confidence to steer a revenue growth of over 40 per cent in FY17 stems from the fact that net debt which stood at Rs 900 crore in the December quarter has more or less been repaid now, making Crompton virtually a debt-free entity. This implies an annual interest cost saving of nearly Rs 60-70 crore going forward.
Many elements have come to the rescue of Crompton. The company commenced its FY16 operation with a gross debt burden of about Rs 2,750 crore. This gradually reduced after divestment of its non-core assets and demerger of its consumer business. Among the noteworthy transactions, sale of land in Kanjurmarg (Mumbai) fetched about Rs 500 crore, while Rs 700 crore of debt was transferred to its consumer business as part of the demerger process.
Gautam Thapar Thapar sold this business to private equity funds Advent International and Temasek Holdings for Rs 2,000 crore last year. Though home-grown Havells too was in the race for the business, Thapar chose to close the deal with the funds. And finally, after months of speculation about whether the deal was still on the table, sale of its distressed international power business did the last bit of help for Crompton.
These restructuring measures may decelerate the pace of revenue growth in the near-term. The consumer business had revenue of Rs 3,200 crore in FY15. It also lent help to the company’s overall margins, given that the business generated EBIT (earnings before interest and tax) margins of 6 per cent till Q2 FY16. On the other hand, though loss-making international power business accounted for almost half of the division’s top-line, its sale will boost the company’s profit and loss statement in the next five to six months, given its track record of sequential EBIT losses posted since FY15, thanks to dismal order flows and execution hiccups in the international business.
Losing out to competition
Acharya explains that trouble in the international power business began when Crompton undertook restructuring to reduce its costs to become globally competitive. Hence, it shifted some of its projects from its manufacturing facilities at Belgium to Hungary. The delay by customers in approval and time taken in building competencies at the Hungarian facility led to increased cost of manufacturing and, in turn, led to losses.
But the good news, he points out, is that though this business is sold to First Reserve International, Crompton retains the technological expertise gained from its international plants and will use it to serve its valued clients. This puts to rest one of the primary concerns the Street had with respect to its technological capabilities, particularly in the 765 kilovolt (KV) space. Acharya affirms that the international acquisitions have helped Crompton gain technological know-how and now it is self-sufficient in this area.
Its product profile stretches up to 1,200 KV in the transformers space. With the existing capabilities, he says, the company is well prepared to take on the competition from domestic and foreign players.
Consequently, capex plans seem quite limited at the moment, except that the company plans to shift its manufacturing base closer to the Mumbai port to cater to its West Asian clients. But, this too is over a span of four to five years and may partly be funded from proceeds of the sale of its existing Kanjurmarg plant.
Going forward, given the 14-months visibility on the transformers and switchgear business with an order book of Rs 8,000 crore, Acharya is confident of an improved performance in the power division. Within the industrial segment, low traction motors is where the company is placing its bet on, given the significant improvement in demand for these products and rapid sustainable growth emanating for this business from the Indian Railways.
In wait-and-watch mode
That said, though the management guides for a leaner and fitter B2B business growth in FY17, the Street prefers to watch these indicators cautiously. Analysts say that while the power business, now accounting for half of standalone revenues, is not technology-intensive, doubts persist on the scalability of its industrials segment.
Misal Singh, analyst at Religare Capital Markets who recommends ‘buy’ on the Crompton stock, points out that there are a few gaps in its switchgear business. “That apart, though Crompton has always been positioned as the third largest player in the motor business, ABB and Siemens continue to dominate the market in India,” he adds.
Renu Baid of IIFL adds: “The technology Crompton has is adequate at the moment. But if one has to maintain pricing power and stronger margin profile, it needs to move up the chain where competition is relatively less.”
According to Singh, revenue growth of 5-8 per cent is a realistic target for company. Analysts feel that it would be crucial to watch how the B2B business plays out once the sale of international power business concludes. Operating margins too, they say, may only be in the 6-8 per cent level, given the pricing pressure on the industry. Seen against the subdued Street expectation, delivering the promised goods under tough operating conditions in FY17 would be critical for Crompton to win back the investor confidence.
Sunday, March 27, 2016
Crompton Greaves plan to cut debt makes analysts bullish on counter
Crompton Greaves plan to cut debt makes analysts bullish on counter
By Narendra Nathan, ET Bureau|Mar 28, 2016, 08.00 AM IST
The demerger of Crompton Greaves' consumer products business is complete and the counter started trading (excluding the consumer business) from 15 March. It is quoting close to the value assigned by analysts to the demerged entity earlier.
Now, because of several reasons, analysts are beginning to get bullish on this counter. First, because investors prefer focused companies over diversified ones. Most conglomerates quote at a discount to their sum-of-parts valuation, popularly known as conglomerate discount. The valuation discount for Crompton Greaves should also gradually go now.
Second, Crompton Greaves plans to reduce its loss-making overseas businesses and focus on domestic business. Since the domestic business is a cash generator, this should further help to improve its valuations. This is popularly known as tossing out-the-trash-and-keeping the-cash strategy. The first in line for sale is the company's international systems business. Though systems business contributed only 27% to its overseas revenue, it accounted for most of the company's overseas losses. The other two overseas businesses—automation and drives division—are making reasonable earnings before interest, taxes, depreciation and amortization margins of around 8% now. Once this division is sold, the company's loss from its international operations should come down by the second half of 2016-17.
Third, Crompton Greaves plans to use the money generated from overseas asset sales for debt reduction to become a completely debt-free company. The company management has already accepted a revised offer to sell its international power business for 115 million to First Reserve PE fund. The operational and organisational transition appears to be going on smoothly. The management has indicated that the company may go for further monetisation of assets in 2017-18 and, this, along with the positive cash flow from the domestic business, should make Crompton Greaves a cash-rich company by March 2018.
Currently, the counter is depressed because of concerns about overseas asset sales. Though things are expected to improve, low current margin is another factor pulling down valuations. As per consensus estimate, the company's earnings per share may jump to Rs 4.72 by March 2017. This means that the counter is trading only at a forward PE of 10.
Selection methodology: We pick the stock that has shown the maximum increase in 'consensus analyst rating' in the past one month. Consensus rating is arrived at by averaging all analyst recommendations after attributing weights to each of them (5 for strong buy, 4 for buy, 3 for hold, 2 for sell and 1 for strong sell) and any improvement in consensus analyst rating indicates that the analysts are getting more bullish on the stock. To make sure that we pick only companies with de ..
Wednesday, March 9, 2016
Major relief for Crompton Greaves
The company has sealed a deal to sell its ailing international power business, which will help cut debt
Hamsini Karthik
March 9, 2016 Last Updated at 22:21 IST
It has been back-to-back gains for Crompton Greaves. First, it firmed up on the demerger of its consumer business, which lit up its stock price by 12 per cent. Now, the sale of its international power business reaching a closure lifted its stock by nine per cent on the bourses on Wednesday.
The company's international business valued at €115 million or Rs 850 crore and sold to US-based private equity First Reserve International on a cash and debt free basis, will give the much-needed respite to Crompton Greaves. Most analysts were not attributing much value to the international power business, given its 20 quarters of cash-loss record. Earlier, expectations were that sale of this business would not fetch more than Rs 400-500 crore. However, now realising Rs 850 crore, analysts at Kotak Research attribute a fair value of Rs 40-45 a share to the power and industrials business (non-consumer business) against its earlier valuation of Rs 22-28 apiece. Motilal Oswal Securities, too, has revised its FY17 earnings per share target from Rs 3.8 for its non-consumer (power and industrials) business to Rs 5.3.
Although the money will come in a staggered manner, it will help Crompton cut its debt burden significantly from Rs 900 crore as on December 31, 2015 to nearly zero. Its management has guided for zero interest cost with the closure of the sale. Most importantly, the company’s profitability would get a boost. If these assets are excluded, the management said theoretically it would add Rs 350 crore to profits in FY16.
Following its sale, in FY17, while Crompton Greaves now expects to clock revenues of Rs 6,500 crore (down 35 per cent compared to FY15 revenues, largely due to sale of international power business) from the non-consumer businesses, net profit is pegged at Rs 325 crore; up 55 per cent compared to FY15. With the automation business also expected to be sold in FY17, its overseas exposure will be restricted to drives and rotating machines business, which are value-accretive. That said, the fate of Rs 1,200 crore worth of loans advanced by Crompton to its international entities is the only overhang, where it might have to take a write-off if no effective means of handling the same is discovered. For now, the Street is building in zero recovery from these.
Going ahead, with the budgetary push for infrastructure sector and prospects for the domestic non-consumer business inching up, FY17 holds promise for Crompton Greaves.
Friday, March 4, 2016
Re-rating for Crompton Greaves' consumer biz
Re-rating for Crompton Greaves' consumer biz
Focus on brand building, expansion of product basket and channels will aid earnings growth going forward
Sheetal Agarwal March 04, 2016 Last Updated at 21:35 IST
Come March 16 and the Crompton Greaves stock will trade ex-consumer business - Crompton Greaves Consumer Products (CGCP). Most analysts are positive on the consumer business, which is likely to list sometime in April, and believe it has the potential to re-rate going forward. Consider this: CGCP is expected to list somewhere between Rs 100 to Rs 110 a share. But, some analysts such as Misal Singh of Religare Capital Markets ascribe a fair value of Rs 120 to Rs 140 to the consumer company, whereas Macquarie Capital and MOSL assign a value of Rs 140 and Rs 125, respectively. Crompton Greaves’ shareholders will get one share in CGCP for every share held; the current price of Crompton Greaves is Rs 141, which indicates the potential for value-unlocking.
Meanwhile, the new management is likely to step up focus on brand building, consumer-centric innovation and enhancing its reach to non-electrical channel such as e-commerce, multi-brand retail, among others, to boost the consumer business. Notably, against three per cent (as a per cent of sales) advertising and promotional spends incurred by Havells, CGCP spends only one per cent towards these activities.
The company plans to improve this going forward and leverage the brand ‘Crompton’ to increase its presence in appliances and switchgear segments. Its core products (fans, lighting, pumps) stand to gain from increasing income in the hands of consumers after the seventh pay commission as well as higher thrust on the rural economy. The company’s pumps business (20 per cent of revenues) also stands to gain from halving of excise duty on pumps from 12.5 per cent to six per cent in the recently announced Budget. In this backdrop, Macquarie Capital believes CGCP should trade at similar valuations to Havells on account of the former’s higher earnings growth expectations going forward. Assuming a listing price band of Rs 100-110, CGCP is valued at 18-19 times FY18 estimated earnings.
Havells, on the other hand, trades at about 25 times FY18 estimated earnings. CGCP’s revenues have grown 15 per cent over FY12-FY15, which is in line with industry. Analysts at MOSL believe the company could post 14 per cent revenue growth in FY17. However, Ebitda margins could come down a bit as CGCP scales up advertising, sales and promotional spends going forward.
Strong brand identity, robust distribution network and healthy financials are some of the key strengths of CGCP, which aims to grow ahead of the industry. On the downside, half of CGCP's revenues are outsourced, which includes imports. Thus, its earnings are vulnerable to any sharp volatility in the rupee, which investors will have to keep an eye on.
Tuesday, June 9, 2015
Outgoing P&G India Chief Shantanu Khosla Set to Join Crompton
Jun 08 2015 : The Economic Times (Mumbai)
Outgoing P&G India Chief Shantanu Khosla Set to Join Crompton
Chaitali Chakravarty, Sagar Malviya & Arijit Barman
New Delhi | Mumbai:
Procter & Gamble India managing director Shantanu Khosla will join the consumer business of Crompton Greaves to spearhead the company under its new private equity owners. Khosla is coming on board in a senior leadership position and is likely to be the vice chairman and managing director, said multiple sources with knowledge of the matter.
Crompton Greaves' consumer division, Crompton Greaves Consumer Products, is being spun out and getting demerged from its parent into a separately listed company through a court approved process.
The 55-year-old, who will switch shampoo and detergents for fans and lighting, will have a board seat and a CEO under him to drive daily operations, said these sources who didn't wish to be identified.
Khosla made his name at P&G where he led several business units around the globe for more than three decades. During the 13 years when he was at the helm of the Indian unit, the company's revenue multiplied more than six times to Rs. 9,000 crore. Last week, P&G India announced Khosla is exiting the consumer products major with effect June 30.
“The trend of hiring professional management by financial sponsors is commonplace globally. It can add a fresh impetus for future growth of any consumer brand,“ said Ritesh Chandra, executive director, head-consumer group, at Avendus Capital.
Around a month ago, Crompton Greaves agreed to sell its consumer electricals unit for `. 2,000 crore to Advent International Corp and Singapore's Temasek Holdings to unlock value and help repair its leveraged balance sheet. After the separation, which received board approval in February, the shareholding pattern of the new consumer company will mirror that of Crompton Greaves.
The consumer electricals unit will be first demerged into a standalone company and will be listed separately. Advent and Temasek bought out the promoter stake of 34.38% in the business -a move that will also trigger an open offer for an additional 25% in the new company . Upon completion, the new PE owners could end up with close to 60% ownership. Both P&G and Advent declined to comment on Khosla's appointment.
“Khosla showed his marketing acumen when he took Hindustan Unilever head-on and gained share in many key categories. The products may be different but he will surely spearhead CG's brand-building initiatives in a space that is increasingly getting cluttered,“ said the CEO of a personal-care company who didn't wish to be named.
Crompton's consumer electrical unit, which accounts for nearly half its standalone business, generated a revenue of Rs. 3,232.6 crore for the fiscal year ended March 31, 2015. On a consolidated basis, the segment contributes a fifth to its group sales but half its operating profit.
The consumer business largely operates in four segments -fans, lighting, water products (pumps, etc.) and kitchen appliances. The first two clearly dominate its sales, together contributing 74%. In fans and domestic pumps segments, it is the market leader. In lighting, the company is third (14% share) while it is No. 4 in water heaters with a 10% share of the market.Scaling up in home and kitchen appliances have been very slow, feel analysts tracking the company .
“The entry of Advent and Temasek will lead to a focused business approach for the consumer business and allow the business to pursue aggressive growth opportunities,“ said a recent Motilal Oswal report.
Monday, April 27, 2015
Brand visibility top task for CG consumer arm's owners
Brand visibility top task for CG consumer arm's owners
Crompton spent just 3% of revenue on ads and promotions compared to Havells' 9% and TTK's 12%
Aneesh Phadnis | Mumbai April 26, 2015 Last Updated at 22:30 IST
dvent International and Temasek, which teamed up to purchase Crompton Greaves' (CG) consumer products arm from Avantha Holdings on Friday, have their task cut out - ramp up products and promotions and increase consumer connect.
The consumer business unit, which manufactures fans, lighting appliances, pumps and kitchen appliances, is profitable and contributed half the company's standalone pre-tax profit in FY14. The company is number one in the fans and domestic water pumps segments and number three in lighting appliances. But in other areas, growth has been limited.
Challenges are aplenty. Competition is stiff as the consumer electrical goods sector is crowded with established companies and new entrants such as Eveready (in LED lights) and Luminous (fans). While Havells is aggressively pushing its identity as a consumer electrical goods company with multiple brands, players like Bajaj Electricals are premiumising with separate brands such as Morphy Richards. With the companies getting ready to fight for market share, it will certainly be a battle to watch out for.
Also, while CG's strength lies in engineering and manufacturing, it lags peers in advertising and brand building. "CG has managed its working capital cycle and distribution well and ensured that the product quality remains good. But in areas such as consumer connect and brand building, there has been inadequate focus in the past. I expect the new investors to make significant investments in distribution, rural penetration, brand building and product portfolio enhancement," said R Ramakrishnan, group CEO of Polycab Wires.
The new investors may find it easier to drive growth as the consumer business performance will not have an overhang of the slowdown in the domestic power business or the sluggish overseas business - the two factors that impacted CG's overall business performance.
"Crompton Greaves has in the past not focused much on driving growth for its consumer segments owing to issues at its international transmission and distribution business on which most of the focus has been directed. New product launches have been limited, the company has not tried moving up the value chain in terms of premium offerings and has spent inadequately on advertising relative to peers," said Barclays Equity Research in a note to investors last month.
Comparing advertising spends of various companies in this sector, Barclays observed that while CG spent 3 per cent of its revenue on advertising and promotions, Havells and TTK spent 9 and 12 per cent of the revenue for the same purpose. Other companies like Voltas, Bajaj, Philips and Blue Star spent 3-7 per cent of revenue on promotions.
Over the last couple of years, CG has taken a number of steps to expand reach. It expanded its distribution network to 134,000 outlets in the last financial year and started its own exclusive shops. Of this, 22,000 retailers cater to rural India. "CG's strength has been the distribution network it has built over the years but it is not a vibrant brand because of low advertising spends," said Rajeev Karwal, founder-director, Milagrow, a consultancy firm.
"Given that the category is low-involvement unlike big-ticket durables, it all comes down to the brand perception and styling of the products. Hence, all brands in the category are ramping up their ad spends. They also get to leverage their distribution networks (as Havells, Bajaj Electricals and Orient have done)," Karwal, who has had stints at LG Electronics, Philips, Electrolux and headed Reliance Retail's consumer durables arm, had told Business Standard after the company announced the demerger of its consumer business.
An industry expert said CG had a dominant position in fans and the domestic water pumps business but was facing competition from Havells which dominates in high-end fans. "The new investors have an opportunity to grow the lighting and kitchen appliance businesses," said an industry expert.
Shweta Jalan, managing director at Advent International, said "Crompton's consumer business is an attractive business that we believe will thrive as a standalone company as it had leading positions in several fast-growing product categories with strong brand names and extensive distribution capabilities. "Post completion, we look forward to driving growth by investing in sales and marketing, distribution and enhanced product offerings."
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