Crompton Greaves trades ex- consumer electrical business, stock crashes over 70%

Shares of Crompton Greaves crashed 74 per cent to Rs 40.30 in today’s trading session following the demerger of its consumer electricals business. Therefore, from now on Crompton Greaves shares will reflect only its power business i.e. the power transmission business.

According to the terms of the arrangement all the shareholders who were are on the books of registrar on March 16, will get one share of Crompton Greaves Consumer Electricals Limited for one share that they are holding of Crompton Greaves. Last year, Crompton Greaves’ board approved demerger of its consumer products business into a separate listed company, Crompton Greaves Consumer Electricals Ltd.

The consumer business is expected to be listed separately in April.  Crompton Greaves had in February 2015 announced the decision to fully demerge its consumer products business. The company believes that the demerger will create better growth opportunities for its two large but significantly different businesses - power transmission and consumer products business such as fans, pumps and heaters.

The power business has an India order book of about  Rs 4,000 crore. Biggest positive for the company going forward is that it will become completely debt-free in FY17 which will subsequently add more value to shareholder’s investment.

In anticipation of the demerger; and the simultaneous selling of its Transmission and Distribution (T&D) business outside India, has helped the stock rally by more than 30 per cent since the big crash post Q3 results.

According to analysts, consumer business has been doing exceptionally well for Crompton Greaves. In fact it was the industrial business with losses on the T&D part and the system part which was dragging the consolidated profits down. So, the entire demerger is a huge positive for the consumer business of Crompton Greaves.

In the gone by quarter, Crompton Greaves' revenue decreased by 12.68 per cent to Rs 6370 crore in 9MFY16 on a yearly basis. The company's EBITDA too reduced by 75.95 per cent to Rs 61 crore in 9MFY16 as compared to same period in previous fiscal year. It reported net loss of Rs 39 crore in 9MFY16 against net profit of Rs 408 crore in 9MFY15. Crompton's consolidated net debt reduced to Rs 900 crore as of Q3FY16 from Rs 1900 crore as of FY15.

Crompton Greaves in order to pare down its debt sold its Transmission and Distribution (T&D) business outside India. The company divested its business to First Reserve International for enterprise value of Euro 115 million (Rs 8510 million).