Crompton Greaves slips 6%; Why are analyst still bullish?

4 February, 2015 5:39 AM

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Shares of Crompton Greaves fell 6 percent intraday on Wednesday after its December quarter results disappointed investors. Both standalone and consolidated results show year-on-year pressure on the topline. Its third quarter consolidated net profit shot up more than 4-fold to Rs 274.3 crore compared to Rs 62 crore in the year-ago period only because of land sale in Mumbai.

Bank of America Merrill Lynch states that multiple headwinds led to earnings miss and mainly due to higher-than-expected losses in its international subsidiaries. Losses were higher mainly on Rs 87 crore on additional charge during the quarter for provisions for re-work and tax write off. Impact of weaker euro and lower exports on delayed shipments were other causes for the miss.

During the quarter, its consolidated total income declined 1.7 percent to Rs 3,333.2 crore during October-December quarter from Rs 3,389.3 crore in same quarter last fiscal.

However, BoAML maintains a buy rating with a target of Rs 231 per share but sharply cuts FY15 earnings after 3Q losses and lowers our FY16-17 earnings by 2-5 percent. “Though we expect losses in Crompton Greaves international subsidiary to remain elevated for the next two quarters as it executes legacy and potentially loss making orders, we expect losses to decline and lead to gradual turnaround by March 2017,” it says in a report.

Goldman Sachs also retains buy rating with a potential upside of 11 percent but lowers target price to Rs 198 from Rs 228 earlier.

“Repeated postponement in improvement in overseas operations is concerning and likely to persist for the near term. But with significant thrust in T&D capex in India, lower raw material prices and expected improvement in industrial capex, we expect it to benefit over the medium term,” the brokerage says in a statement.

Goldman Sachs has increased FY15E EPS by 13 percent to factor in the land sale, but cut FY16/17E EPS by 21 percent to reflect a much slowerrecovery in overseas operations lowering margins overseas.

At 10:37 hrs Crompton Greaves was quoting at Rs 168.00, down Rs 10.75, or 6.01 percent.


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