Crompton Greaves Equity Research

Date of Research – 13 January 2016

Price – Rs. 184.60

Now known as CG Power and Industrial Solutions

About the Company

Crompton Greaves Limited (“Crompton Greaves” or the “Company”) is an engineering company with its portfolio of products and solutions ranging from high-end power and industrial equipment solutions, to consumer products and home appliances. The Company operates in the segment of power systems, consumer products, industrial systems and other ancillary segments. The power systems include transformer, switchgear, turnkey projects and power supervisory control and data acquisition systems (“SCADA“).

The consumer products business supplies fans, lighting equipment (light sources and luminaires), pumps, and a range of electrical household appliances and provides solutions for integrated security systems, home automation and street lighting.

The industrial systems include electric motors, alternators, drives, traction electronics and SCADA.

Crompton Greaves operates through its subsidiaries including CG Energy Management Limited, CG-PPI Adhesive Products Limited, CG-ZIV Power Automation Solutions Limited and CG Power Solutions Limited. The Company has 20 manufacturing divisions spread across India and with the acquisition of Pauwels (Belgium), Ganz (Hungary), Microsol (Ireland), Sonomatra (France), MSE Power Systems (USA), Power Technology Solutions (UK), three businesses in Nelco (INDIA), Emotron (Sweden), QEI Inc. (USA) and ZIV Group (Spain), the company is emerging as a first choice global supplier for high quality electrical equipments.

Key Financial Figures

Consolidated(Rs. Cr)
ParticularsFY 2013FY 2014FY 2015FY 2016FY 2017
Total Income from Operations12,094.4413,480.5814,013.145,272.12 6,119.75 
Expenses11,711.2812,798.6113,370.704,905.04 5,649.54  
Earnings Before Other Income, Interest, Tax and Depreciation (Operating Profit)383.16681.97642.44367.08 470.21
Depreciation202.92262.14262.03255.75 149.99  
Finance Costs70.9396.66104.6956.07 188.03  
Other income75.44171.55127.3986.33 68.70  
Exceptional items120.71(25.24)54.24 72.73  
PBT64.04494.72428.3587.35 128.16  
Tax100.91236.05221.9914.39 16.60  
Extraordinary items471.01 600.62
PAT (before Minority Interest and share of Associates)(36.87)258.67206.36(398.05) (489.06) 
Profit/ (loss) attributable to Minority Interest(1.12)(0.68)(1.44)(1.33) – 
Share of profit / (loss) of Associates0.3915.02(1.55)(1.20) 1.57  
Consolidated Profit / (Loss) for the year(36.14)244.33209.35(395.52) (490.63) 

Profitability Analysis

ParticularsFY 2013FY 2014FY 2015FY 2016FY 2017
Operating Profit Margin Ratio3.175.064.586.96 7.68 
Net Profit Margin Ratio(0.30)1.921.47(7.55) (7.99)

Operating profit margin is a measurement of the proportion of a company’s revenue that is left over after paying for production costs such as raw materials, salaries and administrative costs. Net profit margin is arrived at by deducting non operating expenses such as depreciation, finance costs and taxes out of operating profit and shows what is left for the shareholders as a percentage of net sales. Together these ratios help in understanding the cost and profit structure of the firm and analysing business inefficiencies.

Key Balance Sheet Figures

Sources of Funds / Liabilities(Rs. Cr)
ParticularsFY 2012FY 2013FY 2014FY 2015FY 2016
Share Capital128.30128.30125.35125.35125.35
Reserves & Surplus3,482.643,433.223,519.213,690.574,471.81
Net worth (shareholders funds)3,610.943,561.523,644.563,815.924,597.16
Minority Interest15.669.4811.7520.30
Long term borrowings616.261,555.011,632.251,903.91600.27
Current liabilities4,151.414,661.545,379.874,933.212,842.28
Other long term liabilities and provisions218.37159.59117.65342.71
Deferred Tax Liabilities135.59146.86187.83200.602,636.92
Total Liabilities8,765.2010,152.7811,015.8510,991.5911,019.34


Application of Funds / Assets(Rs. Cr)
ParticularsFY 2012FY 2013FY 2014FY 2015FY 2016
Fixed Assets2,257.533,066.313,459.142,990.092,677.36
Noncurrent Investments285.26290.08278.00280.59207.24
Current assets6,001.356,456.826,887.827,385.574,322.99
Long term advances and other noncurrent assets34.1724.6249.8923.703,721.88
Deferred Tax Assets186.89314.95341.00311.6489.87
Total assets8,765.2010,152.7811,015.8510,991.5911,019.34

Efficiency Analysis

ParticularsFY 2012FY 2013FY 2014FY 2015FY 2016
ROE / RONW11.23(1.01)6.865.49(8.66)

Return on Capital Employed (ROCE) measures a company’s profitability from its overall operations by calculating the return generated on the total capital invested in the business (i.e. equity + debt). Return on Equity (ROE) or Return on Net Worth (RONW) measures the amount of profit which the company generates on money invested by the equity shareholders. In short, ROE draws attention to the return generated by the shareholders on their investment in the business. Together these ratios can be used in comparing the profitability of the company with other companies in the same industry.

Valuation Analysis

ParticularsFY 2013FY 2014FY 2015FY 2016FY 2017
Total Income from Operations (Rs. Cr.)12,094.4413,480.5814,013.145,272.12 6,119.75
Growth (%)7.52 %11.46 %3.95 %62.38 % 16.08 % 
PAT (Rs. Cr.)(36.87)244.33 258.67206.36(398.05) (489.06) 
Growth (%)(110.03 %)762.68 %(20.22 %)(292.89 %)– 
Earnings Per Share – Basic (Rs. )(0.56)3.863.34(6.31) (7.83) 
Earning Per Share – Diluted (Rs. )(0.56)3.863.34(6.31) (7.83) 
Price to Earnings48.8349.66– – 

Dividend History

The Company has maintained an average dividend yield of 1.26 % over the last 5 financial years.

Liquidity and Credit Analysis

Current Ratio

Higher current ratio implies healthier short term liquidity comfort level. A current ratio below 1 indicates that the company may not be able to meet its obligations in the short run. However, it is not always a matter of worry if this ratio temporarily falls below 1 as many times companies squeeze out short term cash sources to achieve a capital intensive plan with a longer term outlook. Crompton’s average current ratio over the last 5 financial years has been 1.44 times which indicates that the Company has been maintaining sufficient cash to meet its short term obligations.

Long term Debt to Equity Ratio

Companies operating with high long term debt to equity on their balance sheets are vulnerable to economic cycles. In times of slowdown in economy, companies with high levels of debt find it increasingly difficult to service the interest on their borrowings as profit margins decline. We believe that long term debt to equity ratio higher than 0.6 – 0.8 could affect the business of a company and its results of operations.

Crompton’s average long term debt to equity ratio over the last 5 financial years has been 0.23 which indicates that the Company is operating with a low level of debt.

Interest Coverage ratio

Interest coverage ratio indicates the comfort with which the company may be able to service the interest expense (i.e. finance charges) on its outstanding debt. Higher interest coverage ratio indicates that the company can easily meet the interest expense pertaining to its debt obligations. In our view, interest coverage ratio of below 1.5 should raise doubts about the company’s ability to meet the expenses on its borrowings. Interest coverage ratio below 1 indicates that the company is just not generating enough to service its debt obligations.

Crompton’s average interest coverage ratio over the last 5 financial years has been 30.07 times which indicates that the Company has been generating enough for the shareholders after servicing its debt obligations.

Ownership pattern

In its latest stock exchange filing dated 31 March 2017, Crompton reported a promoter holding of 34.42 %. Large promoter holding indicates conviction and sincerity of the promoters. We believe that a greater than 35 % promoter holding offers safety to the retail investors.

At the same time, institutional holding in the Company stood at 48.32 % (FII+DII). Large institutional holding indicates the confidence of seasoned investors. At the same time, it can also lead to high volatility in the stock price as institutions buy and sell larger stakes than retail participants.

About the Author

Rajat Sharma pictureRajat Sharma is a well known stock market analyst and commentator. He has covered Indian markets for over a decade and is regarded for consistently identifying early stage investment opportunities. Attorney by qualification, Rajat has done extensive work for improving corporate governance and disclosure standards.