Crompton Greaves: Short of orders

The Crompton Greaves stock lost 4 per cent on Monday in an otherwise strong market. It’s not that the results for the June 2009 quarter were very weak — stand-alone operating margins, which expanded 210 basis points to 14.8 per cent, were better than expectations. But the management is believed to have toned down the revenue guidance for the domestic business to 12-14 per cent from 15-18 per cent some time ago.

The international subsidiaries’ revenues are expected to grow only in single digits this year. Besides, the Street is concerned that at Rs 6,300 crore, the consolidated order book has been more or less stagnant for over a year and looks less than robust. Orders in the June quarter fell, though they are expected to pick up in the second half of the year. Also, while operating margins were higher, this had more to do with deflation in prices of raw materials because stand-alone revenues were up just 8.4 per cent while the rise in consolidated revenues of Rs 2,200 crore was even lower at 7.6 per cent.

Analysts estimate that in Euro terms, the growth was even lower at just 6 per cent. If the June quarter stand-alone profits were up a strong 29 per cent year-on-year, it was more a result of lower expenses on interest and higher other income. The international business, industry watchers say, is unlikely to recover in a hurry, though demand in the home market , especially for power equipment, should look up as the economy turns. At Rs 292, the stock trades at over 16 times estimated 2009-10 earnings and is expensive given that earnings in 2009-10 are tipped to grow by less than 16 per cent.