Crompton Greaves

Crompton Greaves (CG), one of the leading players in the infrastructure space operates across three segments: power ~69% of revenues, industry ~15% and consumer products ~15%.

Robust investments planned in the power sector provide CG’s power division huge opportunities to grow.

We believe CG’s power division will witness 14% CAGR over FY09-11E. The recent acquisitions have catapulted CG into the league of leading T&D players globally.

The acquisitions have enhanced not only CG’s product profile but also provided it technology to develop higher rating transformers and other engineering solutions.

Outlook

While the buy-back will boost the sentiment towards the stock in the near term, we maintain our positive bias on CGL.

We believe the domestic power business would be the key revenue driver for the company in the near future (thanks to the increasing spend on power T&D projects in the country). It will also aid CGL to grow its revenues at a compounded annual growth rate of 20.7% over FY2008-10.

At the current valuation of 7.4x FY2010E earnings, the CGL stock is attractive. We maintain our BUY recommendation on the stock with a price target of Rs210.

The key risk to our call is a larger than expected slowdown in the international business of the company.

"The company views the power generation, transmission and distributing business as a strategic opportunity for its future growth and would like to expand its presence in this
arena," the company said in a statement.

The board has declared an interim dividend of 25 per cent at the rate of Rs 0.50 per share, the statement added.

At 10:10 am, the stock was down 10.15 per cent at Rs 109.75 on the BSE.