- Crompton Greaves Q2 net rises 20.69 pct to Rs 134.80 cr'Sell' Crompton Greaves on weak outlook for FY14, target price Rs 75: UBS'Overweight' rating on Crompton Greaves, safe in tough macro climate: Morgan Stanley'Sell' Crompton Greaves shares on expensive valuations, target price of Rs 114
We upgrade Crompton Greaves Ltdto neutral from reduce on a 7% potential upside. We now value the companys standalone business at 15x Q2 FY16f earnings per share (EPS) of R9 and add R4 per share as the value of the subsidiaries to arrive at our new target price of R139 per share. Our multiple of 15x is in line with long-term historical average traded range of similar industrial names as well as Crompton. We also back up our target price with sum-of-the-parts-based valuation using segmental benchmarked multiples that yields a fair value of R120, while our DCF-based valuation yields a range of Rs 140-154 per share.
In our view, the worst is over for Crompton Greaves, but the company is still a long way to recovery that is already priced in. Our analysis from the international peer group for Crompton suggests that the worst might be over as far as growth and pricing pressure in the power T&D sector is concerned.
While this still does not imply anything regarding timelines for a full fledged recovery, which we believe will be long-winded, we note that this is probably the right time to look at Cromptons international portfolio more constructively. Notably, until now, we along with the street have been assigning negative value to the international business of the company due to its loss-making nature.