Don’t miss the latest developments in business and finance.

Better prospects turn analysts positive on CG Power & Industrial Solutions

Global businesses continue to be a drag on consolidated financials

stocks, stock market, BSE, NSE, sensex, nifty
Illustration by Ajay Mohanty
Ujjval Jauhari
Last Updated : Jun 22 2018 | 6:36 AM IST
CG Power and Industrial Solutions has seen its market capitalisation erode by almost half from the January highs to the lows of this Wednesday, largely due to concern on its losing international operations. While restructuring and discontinuing of operations in Ireland and Belgium are in progress, delay in sale of the business in Hungary keeps the Street worried. 

For one, the latter is incurring a quarterly loss of Rs 1 billion. Its sale will ease the consolidated numbers, as related debt will also go off the balance sheet. While the Street awaits news on this, after the steep share price fall and given the good performance of its domestic business, the brokerages find value emerging and, hence, have upgraded the stock. 

Following these upgrades in the past two days, the stock gained three per cent on Thursday, even as broader markets closed in the red.

Key segments in the domestic business, 80 per cent of consolidated sales, continue to see steady performance as in the March quarter's numbers. 

Profitability has improved, pulling up the operating profit margin to 11 per cent from single-digit in earlier quarters. Power systems’ revenue (54 per cent of domestic sales) continues to be driven by healthy switchgear and transformer sales, and of industrial systems by railways, motors, drives and automation across regions. 

The motors segment (a fourth of sales) is expected to benefit from increased spending in cement, steel, lift irrigation and from a shift to energy-efficient IE-2 motors. Switchgear (a fifth of sales) should gain from new products and entry into the Southeast Asia market, say analysts. Growth in the railways business (a tenth of sales) will continue and the move towards electric locomotives trebles the scope of value addition, say analysts at Kotak Institutional Equities.  

Hence, analysts are maintaining a positive stance on the standalone business. Rupesh Sankhe at Reliance Securities says he sees some value at current levels and has upgraded the stock. 

However, he feels the major trigger will come from sale of the loss-making power business in Hungary and Belgium, a drag on profit. 
 
After the FY18 results, the management had said procedural delays in sale of the Hungary unit had been due to elections there and should be completed in a few months. 
Next Story