Mumbai: Power equipment firm Crompton Greaves Ltd will be spending Rs2.2 billion in 2008-09 on expanding capacities across its three segments, a top official said.
“That should be good enough to add about 10-12% additional capacity,” Managing Director S.M. Trehan told Reuters in an interview.
“The company adds about 10% to capacity annually and last year spent about Rs1.5 billion,” Trehan said.
“Its annual revenue growth of about 20% comes equally from capacity expansion and from operational efficiencies,” he added.
Crompton Greaves focuses on the manufacture and sale of consumer products, industrial products and power systems.
The company is the flagship of the Avantha Group, which has revenues of more than $3 billion. Paper maker Ballarpur Industries is the other listed entity in the group.
Power systems was the largest contributor to revenues at 67%, followed by consumer products at 16% and 15% from industrial products.
For the quarter to June, Crompton beat street estimates to report a 37% rise in net profit to Rs1.23 billion, while net sales rose 26.7% to Rs20.35 billion.
The rise in raw material costs and interest rates has had no effect on the demand for its products.
“There are no indications of a slowdown now - neither do we see a reduction in sales invoicing, nor deferring of projects. In the first quarter of the year, incoming orders were 66% higher than a year ago,” Trehan said.
At the end of July, it had an outstanding order book of Rs62 billion, executable over the next 15 months.
The International Energy Agency has estimated that world demand for primary energy would rise by 6.3 billion tonnes of oil equivalent by 2030, of which nearly three-fourths would be from India and China.
Peak shortage of power in India last year was 16%, and this represents a huge opportunity of unmet demand for power companies, who are customers of equipment firms such as Crompton, Bharat Heavy Electricals, ABB India and Siemens.
“Crompton being a zero-debt firm, rising interest rates have no impact on the firm, but a rise in input costs was a cause for concern. There is no solution to it because power projects require long gestation periods,” Trehan said.
About 60% of its projects now have a price variation clause built into them while the remainder are fixed-price deals.
“We would like to make it 100% pass-through and we are trying our best to educate our customers,” Trehan noted.
On the raw material side while availability has eased, suppliers do not agree to a pricing of more than three months.
“So we can get into long-term assured supply contracts but we cannot get into long-term price contracts,” Trehan said.
Crompton shares, which opened weak, were trading up 2.4% at Rs268.95 in a weak Mumbai market.