That power has been a bright spot in the capital goods industry has been brought home by Crompton Greaves Ltd’s results for the March quarter. There hasn’t even been a hint of a recession in the power segment, which saw a year-on-year (y-o-y) growth in revenues of 28.6% and Ebit (earnings before interest and taxes) growth of 35.5%. That helped the stand-alone company post net sales growth of 17.4% and growth in net profit of 27%. At the consolidated level, net profit growth was 34%, but that was boosted by higher “other income”. Part of the profit growth was on account of currency fluctuation, as the profits of the company’s European and US operations were boosted by rupee depreciation. Capacity utilization stood at 70-80% for the domestic business and 80-85% for the overseas business.
But what is interesting is the confidence of the management about the future. It said that for the company, demand growth in 2009-10 should be in the 18-20% range in the power segment, 12-15% in the consumer segment and 8-9% in the industrial segment. For overseas operations, too, growth in the power segment is expected to remain strong at 12-13%. It pointed out, though, that there was a stagnation in the distribution business and that in Europe, deliveries were not being taken by wind farm developers. The management said the margins for FY09 would be maintained in FY10. Order inflows are expected to be 20% higher than those in FY09.
Operating margins in the company went up 240 basis points in the March quarter compared with the year-ago period. One basis point is one-hundredth of a percentage point.
The management pointed out, though, that monitoring margin movements every quarter is not the right approach in the business because of differences in the product mix and that looking at the annual margin would be more apt.
The company’s industrial systems division, however, has been bearing the brunt of the slowdown and, for the stand-alone company, profits for this division have been flat year-on-year. This division’s order backlog has declined by 8%, as order inflows fell by 3%. The management believes that the slowdown in the segment will continue in the first half of the current fiscal.
The company’s Ganz unit in Europe has now become profitable at the Ebit level. For the consolidated company, the order backlog stands at Rs6,568 crore.
The Crompton Greaves stock had been hurt earlier because of investment in a promoter group company, but there has been a spectacular rerating recently, with the stock up moving up smartly after its results. While the new government is expected to make the power sector its priority, the stock is up a huge 75% in the past month, leaving little room for further gains.
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