Crompton Greaves Q2FY'13 Result Update: Key Takeaways
Crompton Greaves (CGR) disappointed the street with consolidated revenue fell ~7.5% largely due to losses from international subsidiaries. Further higher cost of production led EBITDA fell ~40% to 1364mn. EBITDAM also remained weak during the Q. Management put forward “cautious stance” for FY13 by slashing revenue and EBITDAM guidance for FY13.

Revenue increased ~8% with contribution from all segment: Total revenue grew by ~8% YoY to 29242mn in Q2FY13 compared to 27126mn of the corresponding Q of previous year. This was due to the segment wise higher contribution with Consumer products growth increased 21.4%, industrial systems by 3.45% and power segment by 1.18% during the Q.

Expenditure weighs on; EBITDA declined by ~40% Y-o-Y: During the quarter, total expenditure as a percentage of sales grew by 1243bps to 27877mn in Q2FY13 compared to 24795mn in Q2FY12. The expenditure grew due to the finished goods cost (4.6%), employee cost (2.9%) and O&M cost (2.5%). Incremental cost led EBITDA to decline by ~40% Y-o-Y to 1365mn in Q2FY13 compared to 2260mn in Q2FY12. EBITDAM too fell by 369bps to 4.7% compared to 8.35% in Q2FY12. The company is suffering due to losses related to the ongoing transfer of production from Belgium to Hungary, and lower margins in its consumer business.

NPAT fell ~64%Y-o-Y: Company recorded consolidated NPAT declined at 421mn in Q2FY13 compared to 1167mn in Q2FY12 during the quarter on the back of higher total cost. Further escalated interest cost by 85% during the Quarter added woes on the NPAt; however fall in depreciation cost by 25% offset some cost. Interest cost increased 85% to 190mn in Q2FY13. But depreciation cost fell by 25% to 544mn in Q2FY13. PBT also fell by ~49% Y-o-Y to 839mn in Q2FY13 compared to 1646mn in Q2FY12. Tax expenses declined by ~10% Y-o-Y to 414mn during the Q. PBTM and PATM also fell by 322bps Y-o-Y and 292bps Y-o-Y respectively to 2.87% and 1.4% during the quarter.

Segment Highlights: Standalone industrial segment grew by 3% (to 3892 mn) and that of overseas subsidiaries was higher by 4% (to 924 mn). But consolidated segment profit of Industrial was higher by 26% (to 703 mn) with good show by industrial business of overseas subsidiaries. While segment profit of standalone industrial systems was up by 3% to 557 mn as margin stay flat, the aggregate segment profit of industrial business of overseas subsidiaries registered a profit of 102 mn compared to a loss of 33 mn in the corresponding previous period. It seems the company's efforts to drive cost efficiency and expanding to more geography start yielding benefits.

Outlook: The management has cut revenue guidance from 12-14% earlier to 8-10% and even EBITDA margin guidance has been slashed down from 8-9% of earlier guidance. The company expect that the FY13 EBITDA to be muted due to the restructuring activities in Europe. Although the company is not in our coverage but still I believe that the stock has hit its 52 Week low and the business losses will recover once the restructuring process will be over. So in longer term the stock can yield better return.