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Tuesday, January 5, 2010

Crompton Greaves Ltd:Buy/sell/hold,growth prospects and recomendation,news and results,target price and analysis,views and outlook

Scripscan:Crompton Greaves Ltd

Story:Crompton Greaves’ widening product basket and inorganic growth strategies have helped the company to transition to a complete power distribution and transmission solutions provider. With this, the company appears qualified to enjoy stock valuations commanded by the major power equipment players. Strong presence in domestic and international operations makes it an interesting story for the investors.The stock price shot up as the company posted better than expected results in Sept ’09 quarter. This was due to improved profitability of foreign subsidiaries. The overseas subsidiaries have a very high employee cost/sales ratio of 22% as against 5-6% for Indian ops, providing scope of improving profitability. The outlook for the company remains strong. It is well placed in most of its domestic segments and international ops are catching up. Investors can buy the stock, as it can continue to remain outperformer.At the CMP of Rs426, the stock is quoting at 18.8x and 16.2x FY2011E and FY2012E EPS, respectively, which is attractive compared to its peers ABB and Areva T&D (which are quoting at 24.9x and 21.5x CY2011E EPS, respectively).Such a high valuation gap is unwarranted and going ahead it would narrow down as CGL has been bridging the technological gaps through various acquisitions. The gap would also narrow down on the back of superior earnings growth and higher average RoEs for CGL as against its peers.One can buy the stock for a CAGR return of 18-20% for the next 3-5 years.

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