Healthy revenue growth Crompton Greaves reported a healthy 14.4% y]o]y revenue growth in its standalone business despite a slowdown in power systems segment, 0.3% y]o]y growth, primarily due to exceptional performance in consumer products and industrial segments which grew by 28.8% and 22.6% y]o]y respectively. Q1FY11 domestic revenues stood at INR 13.4 bn compared to INR 11.7 bn a year ago. However, the unfavorable business environment in US and Europe affected the international business, 42% of total, resulting in only 4.8% y]o]y top]line growth in consolidated revenues. As expected the power systems division, 63% of consolidated revenues, reported de]growth of 2% compared to same quarter last year.

Impressive margin growth

The thrust laid on global sourcing and designing kicked in with overall margin improvement across the segments. Standalone EBITDA grew by 20% y]o]y to INR 2 bn while PAT grew by 25% to INR 1.4 bn reporting margin expansion by 80 bps at operating level and 90 bps at net profit level. For consolidated business EBITDA and net profit margin stood at 12.9%, up 160 bps; and 8.3%, up 100 bps respectively.

Strong segmental contribution

In Q1FY11 consumer products segment, 39% of total, became the largest contributor to the standalone revenues as it grew 29% y]o]y surpassing the power systems segment, 37.5% of total, as it witnessed only 0.3% y]o]y growth. Consumer products segment also recorded highest operating margin growth of 100 bps, from 14% to
15%, resulting in overall improved profitability for the company. Power systems share fell from 67% to 63% of total consolidated revenues due to unfavorable global environment however the heartening thing is it witnessed a margin expansion of
130 bps. Industrial systems segment was a steady performer growing by 22% y]o]y and contributing 23% of total revenues with healthy margins sustained at 20%.

Performance in line with expectation; maintain Buy

Crompton Greaves continues to be our preferred pick in the power T&D space on the back of better operational efficiency than peers, local manufacturing advantage, stronger contribution from other business segments and healthy cash generation resulting in better working capital management. Considering the near term upside from value unlocking in Avantha power the valuations of Crompton Greaves looks compelling. We value it at 20x PE multiple of FY12E EPS of Rs 15.5 to arrive at a target price of Rs 310/share.