Crompton Greaves: Powering ahead

Improved performance of the various constituent businesses boosted numbers

Crompton Greaves reported an improved performance in the September 2007 quarter as all its businesses - power systems, consumer products and industrial systems - did well. Sales improved due to higher demand from West Asia.

The company's standalone operating profits grew 45.1 per cent y-o-y to Rs 106.8 crore in the last quarter, while its adjusted sales rose 9.8 per cent to Rs 905 crore.

The standalone operating profit margin expanded by 200 basis points y-o-y to 11.8 per cent in Q2 FY08. Even in the June 2007 quarter, its operating profit margin had expanded 200 basis points y-o-y to 11.7 per cent.

During the September 2007 quarter, the power systems division of Crompton Greaves leveraged the strong domestic and overseas demand for its transformers and switchgears.

The division's profit went up by an impressive 59.4 per cent y-o-y to Rs 55 crore in the last quarter. Nearly 40 per cent of this division's revenues are derived from the overseas markets and the improvement in segment profits despite the near 12 per cent y-o-y rise in the rupee is commendable, according to analysts.

Crompton Greaves reported a consolidated operating profit of Rs 159.6 crore on an adjusted turnover of Rs 1487.4 crore in the second quarter.

The consolidated numbers include that of the Belgium-based Pauwels and Hungary-based Ganz. Crompton Greaves recently entered the power distribution business by bagging a contract to distribute power in three divisions of the Nagpur circle for a period of 15 years.

Crompton Greaves will pay Maharashtra State Electricity Distribution Company Rs 240 crore in the first year, Rs 260 crore in the second year and increase it thereafter by 5 per cent every year over the remaining time span.

The company also expects to incur an initial capex of Rs 165 crore in the first three years, followed by minimal capex in subsequent years.

The transmission and distribution losses in the Nagpur circle are estimated at 43 per cent and Crompton reckons that these can be brought down by 10 per cent in the first year itself.

Analysts expect a significant upside to the stock in case of a reduction in the losses. The senior management is confident of generating Rs 300 crore in the first year of operations at Nagpur.

At Rs 407, the stock trades at 36 times estimated FY08 and 26 times estimated FY09 earnings and should be an outperformer over the medium term.

Tata Tele: Weak undertones

The numbers of Tata Teleservices (Maharashtra) in the September quarter have been rather disappointing, as the telco posted a net loss at Rs 49.3 crore.

But the stock touched a new 52-week high of Rs 54.15 on Tuesday, though the price subsequently came back to the Rs 46 levels.

The company, which provides fixed line, mobile and fixed line wireless services in Mumbai, Maharashtra and Goa, saw its subscriber base grow to 4.13 million at the end of September 2007.

An 8 per cent fall in the average revenue per user (ARPU) to Rs 367 during the quarter, resulted in the revenues growing by just 6 per cent sequentially to Rs 418.4 crore.

The operating profit margin remained flat at 25.5 per cent, akin to the previous quarters.

The operating profit was Rs 106.5 crore, a yearly growth of merely 6 per cent. The company is unlikely to break even before FY'10 and the merger with Tata Teleservices (TTSL) too appears to be some time away.

Given the strong demand, TTML should not find it difficult to turn in a revenue growth of 20-25 per cent over the next couple of years.

Moreover, the increase in the operating profit should be robust at over 40 per cent.

However, both revenue and profit growth should taper off after 2010. The operating profit margin could expand to around 30 per cent as the subscriber base grows to about 8 million by 2010 and the capex to sales ratio starts coming off from the 55 per cent levels.

While a possible tie-up with a foreign partner might help the brand, the current price factor in the near-term upsides.

With contributions from Amriteshwar Mathur and Shobhana Subramanian