For Crompton Greaves, things have gone so bad in the last two quarters, sagging profits, more than 40 per cent drop in stock price and a negative public sentiment, they can’t get any worse.
The company now hopes acquisition in the industrial motors segment, thrust to exports and reworking of supply chain with a focus on China as a source market would turn around its fortune.
The top management, including Chief Executive Officer Laurent Demortier and heads of business units, met equity analysts here on Thursday to soothe investors. The company yesterday reported a 45 per cent decline in second-quarter consolidated net profit, leading to a 12 per cent drop in its stock price. For the first quarter, it had reported a 58 per cent fall in profit. The firm board decided to sell a jet plane worth Rs 270 crore to clean up its balance sheet following investors’ outcry.
“It will be a difficult year,’’ Demortier told Business Standard on the sidelines of the meet. “We had not anticipated the sharp drop in economy... We were hit by the slowdown in the Chinese economy,’’ he said, adding a downturn in China’s power sector led to an overcapacity and suppliers from the neighbouring country flooding the Indian market. Also, price fall and increase in raw material costs, particularly copper, led to reduced profitability, he said.
In the second quarter, the Ebitda (earnings before interest, taxes, depreciation, and amortization) margins for the company’s power segment fell seven per cent to 5.3 per cent, according to Crompton Greaves’ chief financial officer, Madhav Acharya.
About 68 per cent of the company’s revenues comes from the power systems business and the rest from industrial systems and consumer appliances. Half of the revenues in the power systems business comes from Europe, the US and Africa, and the balance comes from India and other parts of Asia. Now, the company is looking at a different strategy and is focussing on China as a source market for its raw materials. At present, the company has low-cost manufacturing bases in India, Indonesia and Hungary, according to Dileep Patil, chief executive of Crompton Greaves Power.
“In Europe, most of our components are sourced from high-cost markets,’’ Demortier said, adding a team had been deputed at Shanghai to look at sourcing of raw materials such as copper, cold roller grain oriented steel and aluminium.
“We believe it will reduce costs. It is cheaper to buy copper in China,’’ he said.
On the business front, the company witnessed a 33 per cent surge in orders during the second quarter, compared to the immediate previous quarter. It hopes the momentum will continue. “We are maintaining our revenue and Ebitda guidance for the year at 10-12 per cent and 8-10 per cent, respectively. We are already in that bracket,’’ Acharya said.
Crompton Greaves plans to buy a firm engaged in the manufacturing of larger industrial motors. “We are No 1 in India in the industrial motors segment, with 17-20 per cent market share. Globally, it is a $100-billion market. Industrial motors manufactured in India are smaller in size and we are looking at a company which has the technology to manufacture large motors,’’ Demortier said, adding this would increase the company footprint in Europe.
The company is also looking to increase exports of products manufactured in India. At present, only 10 per cent of manufactured goods are exported to Latin America and Africa. The company hopes to exports switch gears, transformers and voltage equipment to other markets to earn better margins.
“We need to wait to find out how things pan out. It will take some time before the company implements its decisions,’’ said an equity analyst who participated in the meting.
