Crompton Greaves reported consolidated sales of Rs21.5 billion in Q3FY09 (up 25.5% y-o-y and 2.7% q-o-q) vs our estimate of Rs20 billion.
The topline beat of 7.2% vs our estimates is due to a weaker rupee (accounts for revenue beat of 3.4%) and better than expected growth in Pauwels and Ganz. Q3FY09 (consolidated).
EBITDA margins came in at 10.5% vs our estimate of 11.1% due to a ~80bps y-o-y EBITDA decline at Pauwels and Ganz in Rupee terms. Consolidated EPS came in at Rs3.36 vs our estimate of Rs3.14.
We estimate that for nine months of FY09, order intake at Pauwels and Ganz would have remained flat (0-5% growth on a constant currency basis) due to the ongoing recession in Europe and the US.
While management hinted at a renewables order offsetting the slowdown in the distribution segment, we remain cautious on a future order intake.
This is based on our multiple checks with European utilities where specifically the private ones are expected to delay investments due to declining electricity volumes.
Also, the pace of wind installations have slowed down significantly due to lack of financing and the project finance market is expected to pick up only in 2HCY09.
In line with our expectations of slowing growth for both consumer and industrial segments (together account for ~30% of sales), the company reported a sharp decline in industrial segment growth for the quarter (5.8% y-y vs our 18% y-y) with segment EBIT margins dropping by 330bps y-o-y.
We are lowering our growth estimate for industrial segment to 9.6% y-o-y from current 13% y-o-y in FY10. Consumer segment sales for the quarter came inline with our estimates of 14.2% growth.
We reiterate our REDUCE rating on the stock due to uncertain capex outlook for European and US utilities, delays in PGCIL ordering, and sluggish growth in both consumer and industrial segments.
The stock currently trades at 8.8x vs peer group at 11.5x. We maintain our target price of Rs110 based on a PE multiple of 7.3x our FY10E EPS estimate of Rs14.98.