CROMPTON GREAVES Good Stock Long Term Buy

Power equipment manufacturer, a part of the Avatha group, the company beat all market expectations and posted a 37% rise in net profit at Rs 123 crore on a net sales of Rs.2,035 crore, up 26.7%. Power systems continued to remain the bread winner, adding 67% to the topline and the rest came from consumer products (16%) and industrial products (15%). The improved performance was on account of its overseas subsidiaries, which showed a 52% rise in revenues on a YoY. The higher replacement market in Europe and the appreciating Euro worked well for the company.

What is very positive is that there has been no effect of the slowdown on the company. Infact its order book remains robust at over Rs.6,200 crore (of which Rs 3,580 crore is from international markets), executable over the next 15 months. This is positive because this indicates that when it comes to the power sector, irrespective of the rising costs and inflation and the overall lethargy in the economy, there has been no let up in power production. Good for the country and good the company! Infact the company has gone on record stating that it has seen neither any reduction in sales invoicing nor is it deferring any projects.

The company has chalked out a Rs.220 crore capex plan in the current fiscal for expanding capacities, around 10-12%, across all three of its segments. Every fiscal, the company adds around 10% to the capacity and this fiscal too it keeps up the tradition.

What is reassuring is that the company is zero debt so for Crompton, rising interest rates is not really an issue. But what is an issue is the rising cost of raw materials. Though most of the companies have a cost escalation clause built in, the suppliers for the company do not enter into a long term price contract, maximum period is three months. Earlier supply was also a constraint but that has eased now. For prices to ease there is a long wait ahead.

The company is expected to have a good fiscal and revenue is expected to grow over 20% and net profits by around 22-23%. At the current levels, Crompton is a good long term buy.
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