Crompton Greaves (CG), one of the leading players in the infrastructure space operates across three segments: power ~69% of revenues, industry ~15% and consumer products ~15%.
Robust investments planned in the power sector provide CG’s power division huge opportunities to grow.
We believe CG’s power division will witness 14% CAGR over FY09-11E. The recent acquisitions have catapulted CG into the league of leading T&D players globally.
The acquisitions have enhanced not only CG’s product profile but also provided it technology to develop higher rating transformers and other engineering solutions.
We expect the subsidiaries to register 13% earnings CAGR over FY09-11E. Slower capex cycle will put CG’s margins under pressure, we estimate this to shave off 90bps from its operating margins by FY11.
However, we expect CG to witness 13% earnings CAGR over FY09-11E. This will be on account of healthy growth of the power division, falling debt of overseas subsidiaries as cash flows improve and diversity in earnings.
The stock has already corrected 51% since the past 6 months and is currently trading at 9x FY10E EPS. We initiate coverage with MARKET PERFORMER rating and a target price of Rs141, upside of 11%.