Crompton Greaves
BSE SENSEX
27,459
S&P CNX
8,497
7 November 2016
Update
| Sector:
Capital Goods
CMP: INR86
TP: INR90 (+5%)
Neutral
Balance sheet deleveraging continues
ZIV Group to be sold to Alfanar for EUR120m
Stock Info
Bloomberg
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 (%)
CRG IN
626.7461
89 / 39
14/35/42
53.8
0.8
606
65.6
Financials Snapshot (INR b)
Y/E Mar
2016 2017E 2018E
Net Sales
52.7
57.0
53.4
EBITDA
3.7
4.8
5.3
Adj PAT
1.3
2.0
3.1
EPS(INR)
2.1
3.2
5.0
EPS Gr. (%)
-29.6
53.8
56.6
BV/Sh. (INR)
73.3
75.8
79.7
RoE (%)
3.0
4.3
6.4
RoCE (%)
5.1
6.2
7.8
P/E (x)
35.3
27.0
17.3
P/BV (x)
1.0
1.1
1.1
Shareholding pattern (%)
As On
Sep-16 Jun-16 Sep-15
Promoter
34.4
34.4
34.4
DII
34.1
33.9
31.6
FII
18.5
17.6
16.9
Others
13.0
14.2
17.2
FII Includes depository receipts
Stock Performance (1-year)
Crompton Greaves
Sensex - Rebased
90
75
60
45
30
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.
The Systems
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
November-end.
Ankur Sharma
(Ankur.VSharma@MotilalOswal.com); +91 22 6129 1556
Amit Shah
(Amit.Shah@MotilalOswal.com); +91 22 6129 1543
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
Operating metrics
Exhibit 1: Key operational metrics
Description
Revenue (INR m)
FY11
FY12
FY13
FY14
28,235
56,540
28,470
18,164
3,942
-547
134,805
12.0
9.2
-1.5
11.9
7.1
0.6
7.6%
1.8%
5.1%
6.8
-2.9
3.9
67
30
3.8
3.1
6.8
FY15
27,341
58,399
32,327
18,409
4,187
-531
140,131
3.1
8.1
-2.6
12.4
7.6
-9.0
8.3%
-0.2%
4.6%
8.3
-5.3
2.9
115
55
4.3
4.0
8.3
FY16
22,898
10,687
0
19,294
116
-273
52,721
0.4
5.1
34.5
0.0
7.2
-8.7
5.7%
10.7%
7.0%
4.2
-2.1
2.1
211
69
FY17E
24,309
11,307
0
21,548
116
-273
57,007
8.9
6.0
30.0
0.0
10.3
-8.7
7.1%
12.6%
8.5%
2.7
0.4
3.2
212
66
FY18E
27,439
1,500
0
24,613
116
-273
53,395
0.0
6.5
7.0
0.0
10.4
-8.7
8.6%
21.7%
9.9%
4.2
0.8
5.0
213
69
Power Systems - Standalone
25,542
27,474
27,247
Power Systems - Overseas
39,486
44,474
46,112
Consumer Products
20,212
21,336
25,927
Industrial Systems
14,971
18,202
18,346
Others
317
1,456
3,896
Less: Inter Segmental
-477
-456
-584
Total sales
100,051 112,486 120,944
Growth %
9.5
12.4
7.5
EBIT Margins (%)
Power Systems - Standalone
18.0
11.6
8.5
Power Systems - Overseas
8.8
-1.6
-9.3
Consumer Products
14.5
12.3
10.7
Industrial Systems
17.6
11.6
11.6
Others
-79.1
-3.7
3.0
Adjusted EBIDTA %
Standalone
15.7%
11.1%
8.3%
Subsidiaries
10.1%
1.7%
-4.3%
Consolidated
13.4%
7.1%
3.2%
EPS (NR/Share)
Standalone
10.8
7.9
7.1
Subsidiaries
3.6
-2.0
-5.6
Consolidated
14.4
5.8
1.4
Net Working Capital (Days)
Standalone
33
39
51
Consolidated
29
33
25
Standalone EPS (INR/Sh)
Consumer
3.2
2.9
3.0
Non-Consumer
7.6
5.0
4.0
Total
10.8
7.9
7.1
Consumer EPS calculated assuming Segment EBIT = PBT, and approx tax rate of 27%
0.0
0.0
0.0
4.2
2.7
4.2
4.2
2.7
4.2
Source: Company, MOSL
Exhibit 2: ZIV Group – EV of EUR120m values the business at 9.3x EV/EBITDA FY18e
Description
Sales
EBIT
Margin (%)
EBITDA
Margin (%)
EV/EBITDA
FY16
8,638
(61)
-1%
777
9%
11.4
FY17E
9,107
124
1%
820
9%
10.8
FY18E
9,562
306
3%
956
10%
9.3
Source: Company, MOSL
7 November 2016
2

Crompton Greaves
Exhibit 3: CG – change in estimates table
Description
Sales
EBITDA
Margins (%)
PAT
EPS
New Estimates
2016
2017E
52,721
57,007
3,671
4,835
7.0%
8.5%
1,297
1,995
2.1
3.2
2018E
53,395
5,270
9.9%
3,124
5.0
Old Estimates
2017E
2018E
57,007
62,998
4,835
5,576
8.5%
8.9%
2,009
2,878
3.2
4.6
% Change
2017E
2018E
0%
-15%
0%
-5%
0%
1.0%
-1%
9%
-1%
8%
Source: Company, MOSL
7 November 2016
3

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 (%)
2011
100,051
9.5
64,980
11,811
9,822
13,438
13.4
1,936
352
1,142
-381
11,910
3,100
26.0
8,810
-381
9,191
76.5
9,268
12.4
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
2016
52,721
-62.4
35,537
6,549
6,964
3,671
7.0
2,558
814
1,116
-5,823
-4,407
144
-3.3
-4,550
-5,823
1,272
25.3
1,297
-29.5
(INR Million)
2017E
57,007
8.1
37,560
7,082
7,530
4,835
8.5
2,101
1,083
900
0
2,551
581
22.8
1,970
0
1,970
25.3
1,995
53.8
2018E
53,395
-6.3
34,439
6,633
7,053
5,270
9.9
2,159
70
957
0
3,998
900
22.5
3,098
0
3,098
25.3
3,124
56.6
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
2011
1,283
31,464
32,747
3,955
160
157
37,019
37,805
19,490
18,315
1,102
6,747
45,646
11,893
25,427
2,984
5,342
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
2016
1,254
44,718
45,972
16,032
2,145
0
91,209
35,684
9,053
26,631
143
2,082
43,147
5,850
20,882
7,969
8,446
18,985
13,579
4,074
1,332
24,162
91,209
(INR Million)
2017E
1,254
46,271
47,525
872
2,145
13
77,616
36,684
11,154
10,434
143
2,082
47,185
6,326
22,579
9,148
9,133
20,419
14,682
4,405
1,332
26,766
77,616
2018E
1,254
48,703
49,957
872
2,145
27
80,061
37,684
13,314
6,981
143
2,082
51,874
5,925
22,611
14,784
8,554
19,210
13,752
4,126
1,332
32,664
80,061
Current Liab. & Prov.
34,790
Creditors
18,585
Other Liabilities
12,148
Provisions
4,058
Net Current Assets
10,856
Application of Funds
37,020
E: MOSL Estimates; Consolidated Financials
7 November 2016
4

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
RoIC
Turnover Ratios
Debtors (Days)
Inventory (Days)
Creditors. (Days)
Asset Turnover (x)
Leverage Ratio
Debt/Equity (x)
2011
10.8
14.4
12.4
17.8
51.0
2.2
23.7
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
30.5
28.1
37.6
93
43
68
2.7
0.1
10.7
9.8
11.8
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
2.2
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
5.0
96
45
74
2.4
0.4
2015
8.3
2.9
21.2
7.1
60.9
0.8
24.0
8.8
24.9
10.3
10.3
0.5
1.2
0.9
4.9
7.3
3.3
97
38
66
2.2
0.5
2016
4.2
2.1
-29.6
6.1
73.3
0.0
0.0
17.4
35.3
11.9
14.7
1.0
1.0
0.0
3.0
5.1
3.1
145
41
94
0.6
0.2
2017E
2.7
3.2
53.8
6.5
75.8
0.6
18.9
31.4
27.0
13.2
9.4
0.8
1.1
0.7
4.3
6.2
2.9
145
41
94
0.7
-0.2
2018E
4.2
5.0
56.6
8.4
79.7
0.9
18.9
20.4
17.3
10.2
7.6
0.7
1.1
1.1
6.4
7.8
3.8
155
41
94
0.7
-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
2011
12,291
1,936
352
3,100
-3,715
7,765
-381
7,384
-7,593
-209
-1,211
-8,805
767
-1,055
352
1,644
-2,284
-3,705
6,688
2,988
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
2016
1,416
2,558
946
144
6,758
5,387
5,201
10,588
-1,500
9,088
6,400
4,925
7,419
-7,782
946
0
-363
15,150
6,828
7,969
(INR Million)
2017E
2,551
2,101
778
581
-1,425
2,646
0
2,646
-1,000
1,646
0
14,121
0
-15,160
778
442
-15,589
1,179
7,969
9,148
2018E
3,998
2,159
461
900
-262
4,996
0
4,996
-1,000
3,996
0
1,319
0
0
461
692
-679
5,636
9,148
14,784
7 November 2016
5

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In respect of any matter arising from or in connection with the research you could contact the following representatives of Motilal Oswal Capital Markets Singapore Pte Limited:
Varun Kumar
Varun.kumar@motilaloswal.com
Contact : (+65) 68189232
Office Address:21 (Suite 31),16 Collyer Quay,Singapore 04931
Motilal Oswal Securities Ltd
7 November 2016
Motilal Oswal Tower, Level 9, Sayani Road, Prabhadevi, Mumbai 400 025
Phone: +91 22 3982 5500 E-mail: reports@motilaloswal.com
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