Crompton Greaves – Another Dismal Performance

Crompton Greaves disappointed the streets with the announcement of its Dec 2012 quarter results. CGL reported a consolidated net loss of Rs 189 crore in the Dec 2012 quarter as against a profit of Rs 77 crore in Dec 2011. According to the management, the results have been impacted on account of right sizing of its Belgium plant during the above mentioned quarter.

While the performance on bottomline was impacted, the consolidated net income was lower by nearly 2% on a YoY basis at Rs 2971.83 crore. CGL’s performance was much below the street expectations, where the topline expectations were at Rs 3237 crore and bottomline was expected at Rs 76 crore. The management stated that the company has carried out right sizing of its operation in its facility at Mechelen and Belgium, which led to recognition of liability of Rs 120.71 crore with respect to employee costs which have been considered as exceptional items. In addition to this, other restructuring related costs aggregating to Rs 108.07 crore were also identified and have been accounted under appropriate operating expense heads.

However, one must note that, after adjusting for the exceptional income, the performance of the company has been poor.Rather on the consolidated basis, the company has made losses up to Rs 54.56 crore in the Dec 2012 quarter.

Coming back to the results, the company has been sailing in troubled waters since the past two years on account of a subdued scenario in the capital goods sector. Even the standalone performance of the company has been dismal where the topline for the Dec 2012 quarter stood at Rs 1746 crore, up by 7.50% on a YoY basis. However, the bottomline declined by 16% YoY to Rs 106.16 crore.

Apart from that, the company has stated that it has entered into a definitive agreement for the acquisition of the compact fluorescent lamps (CFL) business of Karma Industries at an approximate enterprise value of Rs 14.5 crore. The acquisition will help the company to increase its capacity in CFL business by two fold. We, however, feel that it is too early to comment on the financial performance of the company. We recommend investors to avoid the scrip at current levels.