Pick of the Week: Crompton Greaves

STOCK OF THE WEEK

CROMPTON GREAVES
BSE Code (500093), CMP: 124.90

BUY CROMPTON GREAVES @ 124 to 126 TGT 136 to 138
IN SHORT TERM

Crompton Greaves, part of the Thapar Group, was incorporated in 1937. It is one of the largest players in India in the electrical equipment and engineering industry. The company is mainly engaged in the manufacture, distribution and sale of electrical and electronic equipment systems. The company makes a wide range of transformers, switchgear, motors, lighting products, fans, railway signaling equipment, and undertakes turnkey engineering projects. The company is organized into three business groups viz. Power Systems, Industrial Systems, Consumer Products. In addition the company also undertakes turnkey projects from concept to commissioning. Its manufacturing plants are spread across Gujarat, Maharashtra, Goa, Madhya Pradesh and Karnataka. Apart from the local markets CG exports its products to countries, which includes the Southeast Asian and Latin American markets.

INDUSTRY OUTLOOK: - the electrical equipment sector is in the growth phase with production of motors, generators and power transformer recorded a healthy rise. The industry looks attractive due to large expansion and capex plans in power sector along with the strong growth in infrastructure sector. The industry is also witnessing huge surge in the export sale of motors and generators. The present economic scenario and upcoming budget are expected to energize the sector with the companies in the sector are growing both organically and inorganically thereby lightening the future growth of the sector. Therefore, with the enormous potential for growth in this sector, we are bullish on this sector in medium to long term while betting on the company like Crompton Greaves.

INVESTMENT RATIONALE: - The Company has tied up with Dutch firm Lemnis Lighting for launching LED lighting products. The alliance with Lemnis Lighting in the area of solid-state lighting would usher in latest technology from the house of Lemnis supplemented by the strength of Crompton Greaves in application engineering and integrated solutions. The use of solid-state lighting has innumerable benefits and also addresses the issue of energy conservation. The company alliance with the Dutch firm will provide new state of technology which will help the company in strengthening its product line. The company through its 100% subsidiary CG International BV, Netherlands, has acquired 40% stake in PT Pauwels Trafo Asia, Indonesia, its joint venture partner. This step of the company will provide it with the complete autonomy in working and management. The company turnaround strategy begins by gaining global presence by acquiring companies that had strong business expertise and were cash starved. The company is expected to follow the same strategy in future by acquiring companies that are strategically fit and which have potential to synergize the company operations. Sales and NP for year ended 07-08 were 4000.2Cr. & 312.3 Cr. Sales and NP for latest Quarter 1082.9 Cr & 88.9 Cr. On YOY basis NP has increased by 66% & based on quarter latest its increased by 29% Dividend during year ended 07-08 was 80%