Fall in the stock price is not surprising, given the negative sentiment.
Crompton Greaves lost almost half of the 25 per cent gains its stock had witnessed after touching a 52-week low of Rs 134 on August 19. On Wednesday, the stock tanked 12 per cent as the company’s performance for September 2011 quarter left investors disappointed. Though the company did not miss the profit estimates by a big margin, it was towards the lower-end. In July, too, the stock fell 27 per cent over two days, after poor quarterly results in June.
Meanwhile, Crompton’s consolidated sales growth of 12.8 per cent at Rs 2,705 crore for the September quarter came in much higher than expectations, by virtue of a 31.5 per cent jump in its international subsidiaries’ revenue (Rs 1,254 crore or 46 per cent of overall revenues) and helped by the 10 per cent depreciation in the rupee against the dollar.
In the power systems segment, which forms about 65 per cent of consolidated revenues, though domestic sales were disappointing, the international business reported over 24 per cent year-on-year jump in revenues. This helped the segment post a double-digit growth of 12 per cent, contrary to expectations of a five to six per cent increase. Industrial systems also surprised positively, with 29 per cent increase in sales. However, the consumer segment continued to disappoint with mere four per cent growth. The disappointment was on the margin and profit front. Consolidated operating profit margin tanked 5.6 percentage points to 8.4 per cent but; not very different from analysts’ estimates of close to five percentage points drop. The 45 per cent year-on-year decline in consolidated net profit, however, was at the higher end of the 32-45 per cent range estimated by analysts.
The silver lining is that the company’s performance is an improvement over the June quarter. The company reported good growth sequentially, in contrast to expectations of no significant pick up in execution. Sales are up 11 per cent, while operating profit margin and net profit margin have improved close to 100 basis points each. Even order inflows are up 22 per cent to Rs 2,260 crore compared to the June quarter. Going ahead, the management maintains its cautious outlook for both geographies in FY12 and analysts do not expect the second half of FY12 to be any good.
Post the carnage on Wednesday, the stock is again trading close to its 52-week low levels, wherein it is available at a reasonable valuation of 11 times FY13 estimated earnings. While most concerns seem factored in, downside pressure in the medium-term cannot be ruled out. Analysts say, for the stock to bottom out there needs to be better visibility on the demand front, especially for international operations and sustainable improvement in margins.
