CG Power and Industrial Solutions Ltd. share price target

International automation business (ZIV) has been sold off and the company received Rs 7bn as sale proceeds. Consolidated revenues reported at Rs 1,710cr (de-grew 7.6% YoY). Industrial division grew 11.6% YoY reported at Rs 640cr. Power systems division revenue de-grew by 16.7% YY....

CG Powers (CG) 4QFY17 revenue came in in-line with our estimates. However, a decline in SA industrial segment margins (-490bps YoY to 6.4%), led to an APAT miss. SA revenue grew 6.6% YoY, led by -0.7% /16.9% growth in the power/industrial segment respectively. Industrial margins declined, as CG cleared a long-pending dispute with a client.

Crompton Greaves (CRG) reported quarterly numbers in line with estimates. SA revenue grew 10% YoY, led by 16.2%/5.6% growth in the industrial / power segment. SA EBITDA margin at 6.6% ( 140bps YoY) is also in line with our estimates. CRG has realigned the international power business into 5 entities (geography wise) to now sell it in piecemeal manner.

Crompton Greaves (CG) standalone results were in line with our estimates however EBITDA losses in subsidiaries dented consolidated performance. SA revenue grew 5% YoY led by 17.2%/14.8% YoY growth in industrial / automation segment. Subsidiary revenue grew 3% YoY, however it reported an EBITDA loss (Rs 48mn) in the absence of any trading profits.

Delay in Overseas Asset Sale, Eyeing on Domestic Market Consolidated net revenues of Crompton Greaves (CG) grew by modest 4.6% yoy to Rs14.9bn in 2QFY17 compared to Rs14.2bn in 2QFY16 primarily due to better performance of Industrial businesses. On the back of poor operational performance of power system, CG's PAT from continuing operation declined by 46% yoy to Rs268 mn in 2QFY17 compared to Rs497mn in 2QFY16, while net loss from discontinuing operations stood at Rs372mn for the reporting quarter. Stock has corrected by 25% in 1-month recently on account of poor operational...

Crompton Greaves' (CRG) 1QFY17 standalone revenues grew 35% YoY to INR10.4b, in line with our estimates, primarily driven by strong performance in power systems business (+59% YoY). EBIDTA of INR0.6b was below our estimate of INR0.8b. EBIDTA margin of 5.9% too missed our estimate of 7.6% due to higher-than-expected other expenses during the quarter. Adjusted for the INR100m provision in power systems segment, EBITDA was at INR0.7b. PAT of INR383m was below our estimate of INR410m. Power systems business witnessed strong performance, with revenues growing...

Crompton Greaves’ (CG) 1QFY17 results fell short of our estimates led by muted standalone Power margins (5.6%, -190bps QoQ) and higher un-allocable expenses (lower other income and costs related to sale of international power biz). Subsidiaries reported improved performance (PAT of Rs 18mn vs. loss of Rs 741mn YoY). However, this was led by the US power solutions business which will soon be sold.We remain constructive on CG’s prospects led by (a) Balance sheet deleveraging post the sale of its international Power business (b) Consequent simplification in corporate structure and better focus on the more lucrative domestic business and (c) Rising visibility on domestic transmission and Railways capex.

However, UDAY-led benefits are now expected to be long drawn. Also margin profile will remain lumpy given sale/windup of various businesses and related costs. CG’s recent run-up caps near term upsides. Downgrade to NEUTRAL with an unchanged SOTP-based TP of Rs 76/share (15x FY18E EPS for SA, 7x EV/e for subsidiaries).

Top takeaways from Q1FY17 :Recurring PAT (Rs 401mn vs. loss yoy) was inline with consensus but below our estimates. Earnings were aided by an unexpected trading profit (Rs 414mn) booked in the international power systems segment, implying a 44% margin for the business. The management expects this trading profit to taper through the year.  

Valuation: They maintain our Neutral rating with an SOTP?based price target of Rs 86 (unchanged), as see structural headwinds for CRG’s domestic power segment because of lack of new technology for high?end grid products.Also believe that current valuations (19x FY18 PE) not only adequately price in the impending uptick in the industrial business, but also ascribe a value to the potential sale of its automation business. 

Crompton Greaves trades ex-consumer segment from today. The Board of Directors had fixed 16th March, 2016 as the record date for issuing shares of Crompton Greaves Consumer Electricals Limited (CGCEL) to Crompton Greaves...

CRG entered into a binding agreement with a private equity investor First Reserve Internationaltosellitsinternationalpowertransmissionanddistributionbusiness,which includes CRG's operations in Europe, North America, and Indonesia while excluding its...