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Kotak Bullish on Crompton Greaves

June 13, 2007

Crompton Greaves’ fourth quarter numbers are better than estimates. Kotak Securities maintains BUY with a target price of Rs 280.

  • Margin gains were led by higher volumes and material price hedging
  • Standalone order backlogs were up 41% to Rs.20.6 bn
  • The stock has risen 22% since our last upgrade to a BUY. Earnings growth is likely to remain strong, given a healthy order backlog and good demand conditions in Europe.

Crompton Greaves’ standalone order book stands at Rs.20.6 bn up 41%, thereby indicating that current year revenue growth should also be robust.

The investment theme in CGL over the last two years has been that of a strong domestic business environment coupled with synergistic acquisitions in large overseas markets. Apart from access to larger markets, these acquisitions have also helped CGL plus gaps in technology. It has succeeded in turning around the operations at Pauwels and given the favorable demand conditions in Europe aims to replicate the same with Ganz and Microsol.

CGL is currently trading at a P/E ratio of 22.1x and 17.5x FY08 and FY09 earnings (consolidated EPS of Rs.11 and Rs.13.9 per share in FY08 and FY09, respectively)

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