Crompton Greaves
BSE SENSEX
24,794
S&P CNX
7,532
9 March 2016
Update
|
Sector: Capital Goods
CMP: INR152
TP: INR200 (+32%)
Focus back to growing the Indian business
Upgrade to Buy
Sale of overseas power subsidiaries a positive
Stock Info
Bloomberg
Equity Shares (m)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
M.Cap. (INR b)
M.Cap. (USD b)
Avg Val ( INR m)
Free float (%)
CRG IN
626.7
204/114
19/-7/1
95.2
1.4
500
65.6
Financials Snapshot (INR b)
Y/E Mar
2016E 2017E
Net Sales
88.3
76.3
EBITDA
0.9
3.1
Adj PAT
-2.3
1.2
EPS(INR)
-3.7
2.0
EPS Gr. (%)
NM
NM
BV/Sh. (INR)
60.0
61.4
RoE (%)
-5.8
3.2
RoCE (%)
-0.5
3.5
P/E (x)
-41.1
77.3
P/BV (x)
2.5
2.5
Shareholding pattern (%)
As On
Promoter
DII
FII
Others
2018E
61.8
4.6
3.0
4.9
151.0
65.0
7.8
7.8
30.8
2.3
Dec-15 Sep-15 Dec-14
34.4
31.0
18.3
16.4
34.4
31.6
16.9
17.2
34.4
30.9
15.0
19.7
FII Includes depository receipts
Stock Performance (1-year)
Crompton Greaves
Sensex - Rebased
220
190
160
130
100
Crompton Greaves to sell its overseas power subsidiaries for EUR115m:
The
board of Crompton Greaves has accepted the revised offer for sale of its
overseas T&D business from US based private equity firm, First Reserve
international for an enterprise value of EUR115m on a debt free, cash free
basis. Sales will include T&D business of Indonesia, US, Hungary, France,
Belgium and Ireland. The Systems business in US and UK are not part of the
sale agreement. Crompton Greaves expects to sign the share purchase
agreement within the next one month and to close the deal over the next six
months. The CG management has indicated its intent to refocus on the Indian
power and industrial business post this sale.
Proceeds to be used to repay debt on books:
Of the total EUR115m (INR8.5b),
CG will receive EUR84m (INR6.2b) on closure of the deal and will earn out the
balance EUR30m over the next 12-18 months. On a consolidated basis,
Crompton Greaves has gross debt of INR16b and net debt of INR9b; the sale
proceeds of EUR115m will be used by Crompton Greaves to repay its debt and
it would become a debt free company thereafter. Crompton Greaves has also
provided loans and advances of INR12b to these overseas entities to support
business operations; we expect that this entire INR12b would need to be
written off against the reserves in the company.
Loss making systems business to be wound down by 1HFY17:
The Systems
business in UK, US and Brazil are not part of the sale agreed with First Reserve.
While the Brazil business has already been shut down, the company is in talks
to sell off the systems business in US which is likely to be done by the end of
the month. The UK Systems business is already winding down and expected to
close by June-July, 2016. The UK systems business is likely to incur an
additional EUR2.5-3m of losses each quarter till the time it is closed down.
Crompton Greaves to retain its automation and drive business:
Crompton
has decided to retain its automation and drives business. Drives business
currently has revenue of EUR50m and operating margin of 8-9%. It has also
retained its automation business (ZIV) which currently has revenue of
EUR100m and has positive EBIDTA margin. Crompton Greaves however
intends to monetize the automation business by end of FY17 and are already
in talks with a few buyers for the same and the deal could fructify in FY7.
Valuations and view:
We upgrade our estimates for FY17 and FY18 by 15%
and 83%, respectively as we build in lower losses post sale of the overseas
power subsidiaries. We value the consumer business at INR130 (25x FY18e
EPS) and the Industrial businesses at INR70 (15x FY18e EPS) to arrive at our
target price of INR200. We upgrade our rating to
Buy
from Neutral.
Ankur Sharma
(Ankur.VSharma@MotilalOswal.com); +91 22 3982 5449
Amit Shah
(Amit.Shah@MotilalOswal.com); +91 22 3029 5126
Investors are advised to refer through important disclosures made at the last page of the Research Report.
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.

Crompton Greaves
Crompton Greaves accepts definitive offer for the sale of its overseas
T&D business
Crompton Greaves has received and accepted definitive offer for sale of its
overseas T&D business from US based private equity company First Reserve
international Limited for an Enterprise Value of EUR115m on a debt free cash free
basis. Sales will include T&D business of Indonesia, US, Hungary, France, Belgium
and Ireland. Crompton Greaves expects to sign the Share purchase agreement
within next one month and to close the deal over the next six months. Overseas
T&D business sale will help Crompton to a) Reduce debt on the books b) Eliminate
losses at the overseas subsidiaries, c) Refocus on the domestic facilities.
Transaction to help Crompton Greaves repay entire debt on the books
Of the total EUR115m, CG will receive EUR84m on closure of the deal and will
earn out the balance EUR30m over the period of next 12-18 months. On the
consolidated basis, Crompton Greaves has gross debt of INR16b and net debt of
INR9b. The sale proceeds of EUR115m will help Crompton Greaves to repay the
INR9b net debt over the next 18 months and I will become a debt free company
thereafter.
Crompton Greaves has also provided loans and advances of INR12b to these
overseas entities to support business operations. CG is currently in process to
take advice from tax consultants with regards to its treatment and hence no
clarity has emerged on the loans and advances front. We expect that this entire
INR12b would need to be written off against the reserves in the company.
Plans to wind up the loss making Systems/Solutions business
The Systems business in UK, US and Brazil has been retained and are not part of
the sale. While the Brazil business has already been shut down, the company is in
talks to sell off the systems business in US which is likely to be done by the end of
the month. The UK Systems business is already winding down and expected to
close by June-July, 2016. The UK systems business is likely to incur an additional
EUR2.5-3mn of losses each quarter till the time it is closed down.
Crompton to retain Drives and Automation (primarily ZIV) business
Crompton has decided to retain its automation and drives business. Drives
business currently has revenue of 50m Euro and operating margin of 8-9%. It has
also retained its automation business (ZIV) which currently has revenue of 100-
110m Euro and has positive EBIDTA margin. Crompton Greaves however intends
to monetize the automation business by end of FY17 and are already in talks with
a few buyers for the same and the deal could fructify in FY7.
Overseas T&D business sale to help Crompton focus on domestic market
With sale of loss making business, Crompton will focus on the domestic market
and will tap opportunities through its existing product portfolio and by technology
tie-up for new product segment. The management has guided to sale of INR65b,
EBITDA of INR EBITDA of INR4.5-4.8b and PAT of INR3.25b.
9 March 2016
2

Crompton Greaves
Valuation and view
We upgrade our estimates for FY17 and FY18 by 15% and 83%, respectively as we
build in lower losses post sale of the overseas power subsidiaries as also lower
interest expenses as debt is fully repaid from the sale of the overseas power
subsidiaries.
We value the consumer business at INR130 (25x FY18e EPS) and the Industrial
businesses at INR70 (15x FY18e EPS) to arrive at our target price of INR200. We
upgrade our rating to
Buy
from Neutral). Key risk to our ratings is a slower than
expected pick up in the domestic industrial and power transmission capex.
Exhibit 1: Change in estimates table
2016
88,287
901
1.0%
(2,303)
(3.7)
New Estimates
2017E
76,305
3,141
4.1%
1,224
2.0
2018E
61,776
4,611
7.5%
3,073
4.9
Old Estimates
2017E
2018E
99,763
105,161
3,406
4,485
3.4%
4.3%
1,067
1,676
1.7
2.7
% Change
2017E
-24%
-8%
1%
15%
15%
2018E
-41%
3%
3.2%
83%
83%
Sales
EBITDA
Margins (%)
PAT
EPS (INR)
Source: MOSL
9 March 2016
3

Crompton Greaves
Exhibit 2: Key
operating
metrics
FY11
Revenue (INR m)
Power Systems - Standalone
Power Systems - Overseas
Consumer Products
Industrial Systems
Others
Less: Inter Segmental
Total sales
Growth %
EBIT Margins (%)
Power Systems - Standalone
Power Systems - Overseas
Consumer Products
Industrial Systems
Others
Adjusted EBIDTA %
Standalone
Subsidiaries
Consolidated
EPS (NR/Share)
Standalone
Subsidiaries
Consolidated
Net (Debt) / Cash
Standalone
Subsidiaries
Consolidated
Net Working Capital (Days)
Standalone
Consolidated
Standalone EPS (INR/Sh)
Consumer
Non-Consumer
Total
3.2
7.6
10.8
2.9
5.0
7.9
3.0
4.0
7.1
3.8
3.1
6.8
4.3
4.0
8.3
2.0
0.5
2.5
0.0
3.2
3.2
0.0
4.0
4.0
33
29
39
33
51
25
67
30
115
55
119
69
121
66
122
69
1,375
(3,094)
(1,719)
3,188
(8,059)
(5,465)
2,751
(15,430)
(12,681)
4,123
(17,901)
(13,781)
(3,534)
(14,150)
(20,545)
892
(18,214)
(4,984)
1,455
(16,898)
7,012
2,387
(15,303)
11,822
10.8
3.6
14.4
7.9
-2.0
5.8
7.1
-5.6
1.4
6.8
-2.9
3.9
8.3
-5.3
2.9
2.5
-6.2
-3.7
3.2
-1.3
2.0
4.0
0.9
4.9
15.7%
10.1%
13.4%
11.1%
1.7%
7.1%
8.3%
-4.3%
3.2%
7.6%
1.8%
5.1%
8.3%
-0.2%
4.6%
5.2%
-2.5%
1.0%
6.9%
0.2%
4.1%
7.8%
6.2%
7.5%
18.0
8.8
14.5
17.6
-79.1
11.6
-1.6
12.3
11.6
-3.7
8.5
-9.3
10.7
11.6
3.0
9.2
-1.5
11.9
7.1
0.6
8.1
-2.6
12.4
7.6
-9.0
4.0
-6.5
0.0
9.2
-24.0
6.0
-6.0
0.0
9.7
-24.0
7.0
0.0
0.0
9.7
-24.0
25,542
39,486
20,212
14,971
317
(477)
100,051
9.5
27,474
44,474
21,336
18,202
1,456
(456)
112,486
12.4
27,247
46,112
25,927
18,346
3,896
(584)
120,944
7.5
28,235
56,540
28,470
18,164
3,942
(547)
134,805
12.0
27,341
58,399
32,327
18,409
4,187
(531)
140,131
3.1
24,617
44,933
0
19,144
125
(531)
88,287
0.4
26,975
28,678
0
21,058
125
(531)
76,305
8.9
29,004
9,137
0
24,041
125
(531)
61,776
0.0
FY12
FY13
FY14
FY15
FY16E
FY17E
FY18E
Consumer EPS calculated assuming Segment EBIT = PBT, and approx tax rate of 27%
9 March 2016
4

Crompton Greaves
Financials and Valuations
Income statement
Y/E March
Net Sales
Change (%)
Raw Materials
Staff Cost
Other Mfg. Expenses
EBITDA
% of Net Sales
Depreciation
Interest
Other Income
EO Items (as rep.)
PBT
Tax
Rate (%)
Reported PAT
Extra-ordinary Inc.(net)
Adjusted PAT
Minority Int
Consolidated PAT
Change (%)
2012
112,486
12.4
76,850
14,662
12,937
8,036
7.1
2,600
567
628
0
5,497
1,821
33.1
3,676
0
3,676
59.9
3,736
-59.7
2013
120,944
7.5
83,461
17,405
16,247
3,832
3.2
2,029
955
1,000
-1,207
640
1,009
157.6
-369
-2,287
1,918
7.3
1,926
-48.4
2014
136,315
12.7
91,353
19,521
19,322
6,120
4.5
2,621
1,366
1,890
924
4,947
2,361
47.7
2,586
924
1,662
-143.4
1,519
-21.2
2015
140,131
2.8
95,305
19,936
18,466
6,424
4.6
2,620
1,443
1,670
252
4,283
2,220
51.8
2,064
252
1,811
29.9
1,841
21.2
2016E
88,287
-37.0
57,963
16,598
12,825
901
1.0
2,531
1,070
1,483
1,571
353
1,116
316.0
-763
1,571
-2,333
29.9
-2,303
-225.1
2017E
76,305
-13.6
47,734
14,345
11,085
3,141
4.1
1,731
590
1,204
0
2,024
830
41.0
1,194
0
1,194
29.9
1,224
-153.2
(INR Million)
2018E
61,776
-19.0
36,577
11,614
8,974
4,611
7.5
1,225
0
991
0
4,376
1,333
30.5
3,044
0
3,044
29.9
3,073
151.0
Balance Sheet
Y/E March
Share Capital
Reserves
Net Worth
Loans
Deffered Tax Liability
Minority Interest
Capital Employed
Gross Fixed Assets
Less: Depreciation
Net Fixed Assets
Capital WIP
Investments
Curr. Assets
Inventory
Debtors
Cash & Bank Balance
Loans & Advances
Current Liab. & Prov.
Creditors
Other Liabilities
Provisions
Net Current Assets
Application of Funds
E: MOSL Estimates; Consolidated Financials
2012
1,283
34,826
36,109
9,849
-122
157
45,992
44,087
23,005
21,083
1,493
7,864
55,343
12,233
31,432
4,976
6,702
39,790
21,076
14,923
3,791
15,553
45,993
2013
1,283
34,332
35,615
18,515
-1,681
95
52,544
53,424
24,726
28,699
1,965
7,907
59,807
16,367
31,605
5,834
6,002
45,834
24,618
16,994
4,222
13,973
52,543
2014
1,254
35,192
36,446
21,930
-1,532
118
56,962
59,233
26,825
32,408
2,184
2,989
69,171
16,714
35,913
8,150
8,395
49,790
27,737
17,988
4,064
19,381
56,961
2015
1,254
36,906
38,159
27,438
-1,110
203
64,690
55,786
26,622
29,164
737
4,414
72,485
14,552
37,318
6,893
13,722
42,109
25,281
12,704
4,124
30,375
64,691
2016E
1,254
36,379
37,633
15,038
-1,110
217
51,778
57,286
29,153
21,733
737
5,985
51,379
9,168
23,511
10,054
8,645
28,056
15,928
8,004
4,124
23,323
51,778
2017E
1,254
37,259
38,512
0
-1,110
232
37,634
58,786
30,884
12,992
737
5,985
42,728
7,924
20,320
7,012
7,472
24,808
13,766
6,918
4,124
17,920
37,635
(INR Million)
2018E
1,254
39,468
40,721
0
-1,110
246
39,857
60,286
32,109
13,267
737
5,985
40,738
6,415
16,451
11,823
6,049
20,870
11,145
5,601
4,124
19,869
39,858
9 March 2016
5

Crompton Greaves
Financials and Valuations
Ratios
Y/E March
Standalone EPS
Consolidated EPS
Growth (%)
Cash EPS
Book Value
DPS
Payout (incl. Div. Tax.)
Valuation (x)
P/E (standalone)
P/E (consolidated)
Cash P/E
EV/EBITDA
EV/Sales
Price/Book Value
Dividend Yield (%)
Profitability Ratios (%)
RoE
RoCE
Turnover Ratios
Debtors (Days)
Inventory (Days)
Creditors. (Days)
Asset Turnover (x)
Leverage Ratio
Debt/Equity (x)
2012
7.9
5.8
-59.7
10.0
56.3
1.2
20.7
21.7
29.7
18.4
13.6
1.0
3.0
0.8
10.7
9.8
102
40
68
2.4
0.2
2013
6.9
3.0
-48.4
6.3
55.5
1.2
20.1
16.1
57.6
13.9
20.7
0.7
2.0
0.7
-1.0
2.8
95
49
74
2.3
0.4
2014
6.8
2.4
-19.3
6.8
58.2
1.1
11.3
27.6
78.0
22.9
21.6
1.0
3.2
0.5
7.2
4.3
96
45
74
2.4
0.4
2015
8.3
2.9
21.2
7.1
60.9
0.8
24.0
18.3
51.4
21.2
17.9
0.8
2.5
0.5
4.9
4.0
97
38
66
2.2
0.5
2016E
2.5
-3.7
NM
0.3
60.0
-0.3
24.0
59.4
-41.1
416.5
110.6
1.1
2.5
-0.2
-5.8
-0.5
97
38
66
1.7
0.1
2017E
3.2
2.0
NM
4.7
61.4
0.5
24.0
46.6
77.3
32.0
27.9
1.1
2.5
0.3
3.2
3.5
97
38
66
2.0
-0.2
2018E
4.0
4.9
151.0
6.8
65.0
1.2
24.0
37.8
30.8
22.0
18.0
1.3
2.3
0.8
7.8
7.8
97
38
66
1.5
-0.3
Cash Flow Statement
Y/E March
PBT before EO Items
Add : Depreciation
Interest
Less : Direct Taxes Paid
(Inc)/Dec in WC
CF from Operations
EO Income
CF from Oper. incl. EO Items
(Inc)/Dec in FA
Free Cash Flow
(Pur)/Sale of Investments
CF from Investments
(Inc)/Dec in Net Worth
(Inc)/Dec in Debt
Less : Interest Paid
Dividend Paid
CF from Fin. Activity
Inc/Dec of Cash
Add: Beginning Balance
Closing Balance
E: MOSL Estimates
2012
5,497
2,600
567
2,495
-2,310
3,859
0
3,859
-5,758
-1,898
-1,117
-6,875
725
5,894
567
1,044
5,008
1,992
2,984
4,981
2013
1,848
2,029
955
2,177
2,046
4,701
-1,207
3,494
-10,117
-6,623
-43
-10,160
709
8,666
955
897
7,524
857
4,976
5,833
2014
4,023
2,621
1,366
2,211
-3,093
2,707
924
3,631
-6,550
-2,919
4,919
-1,631
-1,146
3,415
1,366
587
316
2,316
5,834
8,150
2015
4,031
2,620
1,443
2,220
-12,250
-8,070
252
-7,818
2,743
-5,075
-1,425
1,348
209
5,508
1,443
589
5,214
-1,257
8,149
6,893
2016E
-1,217
2,531
946
1,116
10,214
5,210
5,201
10,411
-1,500
8,911
6,400
4,930
0
-12,400
946
-206
-12,179
3,161
6,893
10,054
2017E
2,024
1,731
778
830
2,360
5,286
0
5,286
-1,500
3,786
0
7,040
0
-15,038
778
344
-15,368
-3,042
10,054
7,012
(INR Million)
2018E
4,376
1,225
461
1,333
2,862
7,131
0
7,131
-1,500
5,631
0
-1,470
0
0
461
865
-850
4,811
7,012
11,823
9 March 2016
6

Crompton Greaves
NOTES
9 March 2016
7

Disclosures
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Crompton Greaves
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9 March 2016
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