tips to buy best engineering buying and selling stocks in India

Crompton Greaves Ltd (updated - 27 May 2009)
Crompton Greaves was able to report good numbers in the March 2009 quarter on the back of its power systems division, which accounted for a little over half of standalone revenues and nearly three-fourths of consolidated revenues. The division reported a robust 24 per cent y-o-y rise in revenues, offsetting the low growth in industrial systems (due to the slowdown in the capex cycle) and consumer products segments.

The combined performance of Crompton’s international subsidiaries (including Ganz, Pauwels and Microsol) was relatively better with a 28 per cent revenue growth, helped by strong demand in Europe and partly due to the rupee depreciation against the euro. Thus, consolidated revenues for the quarter were up 21.7 per cent to Rs 2,460 crore. Ganz, its Hungarian transformer and switchgear subsidiary, reported a profit before interest and tax in 2009-10, but is loss-making at the net level due to goodwill write-off.

With lower raw material prices, profit margins improved across all the three divisions. However, a sharp jump in employee costs meant a decline in margins. This in turn, restricted the expansion in operating profit margins at the consolidated level, which were nearly stagnant 13.4 per cent.

Crompton’s order backlog may have grown 20 per cent y-o-y to Rs 6,100 crore in March 2009, but it fell marginally over the December 2008 quarter. Demand in industrial systems is unlikely to pick up before the second half of 2009-10, while power systems should grow at around 20 per cent in 2009-10.

Analysts expect the company to report a 15 per cent growth in revenues though there could be some margin pressure due to increased competition in the domestic market, the rupee appreciation and higher input costs. However, at Rs 252, up 55 per cent in one month, the stock trades at 15 times estimated 2009-10 earnings leaving little room for upside in the near-term.
source - BS

Crompton Greaves Ltd
The Crompton Greaves stock lost nearly 10 per cent of its value on Tuesday after it announced plans to pick up a 41 per cent stake in Avantha Power and Infrastructure (APIL), a promoter group company. In fact, the stock crashed 17.5 per cent from the day’s high of close to Rs 143, all the way to Rs 118 after the news broke. Analysts point out that while there is a undoubtedly good long term story in power, in the near term the cash on the company’s books may have been put to better use in the core business. Crompton says it will spend Rs 227 crore for the investment in Avantha Power, valuing the business at Rs 550 crore. Even news of a buyback by the Rs 6,832 crore engineering firm, for an amount of Rs 224 crore, at amaximum price of Rs 170 per share, and an interim dividend of Rs 0.50 per share, failed to revive the stock meaningfully and it closed the session at Rs 122.15.

The company will probably use all the cash it has in hand ---estimated at around Rs 300 crore--- for the stake in Avantha Power, the buyback and also to pay out the interim dividend. The bill for all three is not small at Rs 470 crore. Should the shares be bought back at current levels, it would amount to around 5 per cent of the company’s equity being purchased. At a slightly higher price of around Rs 150 per share, it would translate into 4 per cent of the firm’s equity. While not significant, the buy back should arrest the fall in the share price.

In the absence of details, it’s hard to tell how good the investment in Avantha Power is although there is no doubt potential in the power generation business given the huge shortfall in the country. Avantha Power has four captive thermal power plants located in Maharashtra, Haryana and Orissa with a total capacity of 95 MW. There are plans to increase this capacity to165 MW by December 2009 and besides, the company is also planning to set up two IPP plants of 300 MW each in Madhya Pradesh and Chhatisgarh.

Crompton caters for the transmission and distribution space within the power sector and the European and American operations bring in around 40 per cent of the firm’s consolidated revenues. After posting a growth of 33 per cent in the top line for the first half of 2008-09, Crompton’s revenues grew at a far more subdued 25 per cent in the quarter ended December 2008. The international business showed signs of slowing down, growing at 34 per cent during the December 2008 quarter, much below the 50 per cent growth seen in the first half of 2008-09. Had the rupee not depreciated the growth would have been even slower. According to a BNP Paribas, orders from the international market have been sluggish seeing an increase of just 5 per cent y-o-y (in constant currency terms) in the nine months to December 2008.

Crompton should manage to grow revenues by around about 25 per cent in the current year to around Rs 8,500 crore. However, the pace could slow down significantly next year to less than 20 per cent. That means earnings, which are tipped to grow at around 25 per cent in the current year, could see a more sedate rise of 15 per cent next year. At a price-earnings multiple of around 8 times 2009-10 earnings, most of the risks appear to be priced in.
source - BS

Disclaimer: Information presented on this site is a guide only. It may not necessarily be correct and is not intended to be taken as financial advice nor has it been prepared with regard to the individual investment needs and objectives or financial situation of any particular person. Stock quotes are believed to be accurate and correctly dated, but does not warrant or guarantee their accuracy or date.
Our site takes no responsibility for any investment decisions based on recommendations provided on website.

Crompton Greaves Ltd (updated - 21 July 2009)
The Crompton Greaves stock lost 4 per cent on Monday in an otherwise strong market. It’s not that the results for the June 2009 quarter were very weak — stand-alone operating margins, which expanded 210 basis points to 14.8 per cent, were better than expectations.
But the management is believed to have toned down the revenue guidance for the domestic business to 12-14 per cent from 15-18 per cent some time ago.

The international subsidiaries’ revenues are expected to grow only in single digits this year. Besides, the Street is concerned that at Rs 6,300 crore, the consolidated order book has been more or less stagnant for over a year and looks less than robust.

Orders in the June quarter fell, though they are expected to pick up in the second half of the year. Also, while operating margins were higher, this had more to do with deflation in prices of raw materials because standalone revenues were up just 8.4 per cent while the rise in consolidated revenues of Rs 2,200 crore was even lower at 7.6 per cent.

Analysts estimate that in Euro terms, the growth was even lower at just 6 per cent. If the June quarter stand-alone profits were up a strong 29 per cent yearon-year, it was more a result of lower expenses on interest and higher other income. The international business, industry watchers say, is unlikely to recover in ahurry, though demand in the home market, especially for power equipment, should look up as the economy turns. At Rs 292, the stock trades at over 16 times estimated 2009-10 earnings and is expensive given that earnings in 2009-10 are tipped to grow by less than 16 per cent.
source - BS

Crompton Greaves Ltd (updated - 23 Sept 2009)
The Crompton Greaves management says the outlook for business is better, both at home and overseas, and that it will not lower its guidance.

Some time ago, it had toned down the guidance indicating that revenues in the home market would grow between 12 and 14 per cent, but that it seems will not be revised further. The company’s order book doesn’t seem to have grown too much over the past year —the consolidated order book stands at Rs 6,300 crore of which two-thirds belong to the power division and the rest to the industrial products division.

The management, however, says orders are coming in though the benefits will be felt only in 2010-11. Analysts believe revenues from the company’s international subsidiaries are likely to grow only in single digits this year.

Crompton’s June 2009 quarter numbers were not too bad - the stand-alone operating margins expanded 210 basis points to 14.8 per cent, driven by the deflation in the prices of raw materials. However, standalone revenues were up just 8.4 per cent while the rise in consolidated revenues of Rs 2,200 crore, was even lower at 7.6 per cent.

Crompton plans to list Avantha Power over the next 12-18 months. The Street had been somewhat upset when Crompton announced plans to pick up 41 per cent stake in Avantha Power for Rs 225 crore and the stock lost nearly 10 per cent on a single day.

Avantha, a promoter group company, was valued at Rs 550 crore and analysts had observed that while there was no doubt a good long term story in power, the cash on the company’s books - around Rs 300 crore - could have been put to use in the core business.
At Rs 312, the Crompton stock trades at close to 15 times estimated 2010-11 earnings. Since, earnings are expected to grow at a compounded 17 per cent between 2009-11, the stock isn’t particularly cheap.
source - BS

Crompton Greaves Ltd (updated - 29 Oct 2009)
With orders being executed at a faster pace, engineering major Crompton Greaves has turned in a good set of numbers for the September 2009 quarter. Revenues were up 17 per cent yearon-year at Rs 1,269 crore, driven by the power systems segment and the consumer division. The strong top line growth, together with the lower cost of raw materials, helped expand the company’s operating profit margin (stand-alone) by 330 basis points to 16.5 per cent. While all divisions showed better profitability, analysts believe the absence of foreign exchange losses also helped. With no interest payments to speak of, the net profit jumped 47 per cent.

Analysts point out that the management’s attempts to centralise buying of raw materials, as also its efforts at improving efficiency through better designs, are paying off. They also believe that the management’s strategy of pursuing only those orders that are comparatively more profitable than others has also worked.

However, while business in the home market is clearly looking up, the company’s international operations, comprising mainly Pauwels, Ganz, Microsol and MSE Power, aren’t quite out of the woods yet. With orders slow to come in, revenues for the September 2009 quarter were down by 9 per cent despite the rupee depreciating against the euro. However, a better product mix and a lower raw materials bill helped drive up margins by 180 basis points to 10.6 per cent.

Crompton’s revenue growth may be subdued in the current year, but a rise of about 15 per cent is expected in 2010-11. That should also translate into an increase in the earnings per share of around 15 per cent on a high growth of 24 per cent this year.

The stock rose 6 per cent to Rs 361 on Wednesday, but even at these levels, it trades at around 16 times estimated 2010-11 consolidated earnings and is attractively valued, given that the demand for capital goods in the home market is clearly recovering.
source - BS