Major relief for Crompton Greaves

http://www.business-standard.com/article/opinion/major-relief-for-crompton-greaves-116030900600_1.html

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.

Re-rating for Crompton Greaves' consumer biz

http://www.business-standard.com/article/opinion/re-rating-for-crompton-greaves-consumer-biz-116030401176_1.html

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.

Outgoing P&G India Chief Shantanu Khosla Set to Join Crompton

http://epaperbeta.timesofindia.com/Article.aspx?eid=31818&articlexml=Outgoing-PG-India-Chief-Shantanu-Khosla-Set-to-08062015010047

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.

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."