7 November 2016
TP: INR90 (+5%)
Balance sheet deleveraging continues
ZIV Group to be sold to Alfanar for EUR120m
Equity Shares (m)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
M.Cap. (INR b)
M.Cap. (USD b)
12M Avg Val (INR M)
Free float (%)
89 / 39
Financials Snapshot (INR b)
2016 2017E 2018E
EPS Gr. (%)
Shareholding pattern (%)
Sep-16 Jun-16 Sep-15
FII Includes depository receipts
Stock Performance (1-year)
Sensex - Rebased
Crompton Greaves receives binding offer for acquisition of its automation
business for EUR120m.
Crompton Greaves (CRG) has received a binding offer
from Saudi Arabia-based Alfanar for acquisition of its B2B automation business,
ZIV along with its subsidiaries based in UK, Ireland, France and India. Alfanar
has signed a binding agreement for an EV of EUR120m on a debt-free cash-free
basis and the deal is expected to be completed by January 2017. For FY16, ZIV
had registered revenue of INR8.6b (-4% YoY) and EBIT loss of INR61m.
Management has guided that on a sustainable basis, ZIV has an EBITDA margin
of 9-10% and the loss at EBIT level is due to amortization of R&D expenses. At
an EV of EUR120m, ZIV is valued at an EV/EBITDA of 11.4x FY16, 10.8x FY17E
and 9.3x FY18E. CRG had bought ZIV Group in July 2012 at EUR150m.
ZIV Group sale to turn CRG into a net cash company.
ZIV sale will help CRG to
reduce debt on the book and focus on its core operations in India. As of
4QFY16, CRG had gross debt of INR16b and net debt of INR8b. We build in
receipt of EUR84m (INR6.3b) from sale of the overseas power T&D business
and EUR120m from the sale of ZIV, which would help reduce gross debt by
INR15.2b by March 2017. It should turn into a net cash company by the end of
4QFY16. Another EUR30m (INR2.2b) would be received in FY18 as the balance
of the proceeds of sale of the overseas power T&D business.
Plans to wind up the loss-making Systems/Solutions business.
business in UK, US and Brazil, which had been retained at the time of sale of
overseas T&D business, would also be wound down over the next few quarters.
While the Brazil business has already been shut down, the company is in talks
to sell off the systems business in the US. The UK systems business is expected
to be wound down.
Raise TP to INR90; retain Neutral.
We raise our estimates to factor in the cash
proceeds from sale of ZIV and the resultant reduction in debt and interest
expenses – this leads to an increase in our FY18E EPS by 8% to INR5. We value
CRG at 18x FY18E EPS of INR5, yielding a target price of INR90. We maintain
our Neutral rating, as valuations factor in a recovery in key end markets. Key
upside risks to our rating: (a) faster than expected recovery in industrial capex,
(b) sharp fall in competitive intensity in the domestic T&D segment. Watch out
for closure of the overseas power T&D sale to First Reserve for EUR115m – this
has already been delayed by a month and is now expected to close by
(Ankur.VSharma@MotilalOswal.com); +91 22 6129 1556
(Amit.Shah@MotilalOswal.com); +91 22 6129 1543
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