Wednesday, July 20, 2011
Crompton Greaves is a stock that has been oversold this week due to week Q1 numbers.Crompton Greaves a power equipment manufacturer and electrical appliance maker, reported a sharp decline in April-June consolidated net profit by 58.6% to Rs 79 crore yesterday on the back of listless revenue growth and higher raw material costs. Disappointment in earnings, which triggered a sharp sell off, made investors edgy and the discomfort reflects in share prices as it tumbled back to its 52-week low of Rs.170.
The main reason for CG week Q1 numbers is due to the dealers have not picked up products, thus, adding to inventory and not moving sales. Nobody expected, until last 31st March when the consumer was growing in that quarter at 35-36%, it will come down to 2%. But, thats the scenario of the whole market and it is not exceptional to this firm.
Moreover The biggest worry has been the Middle-East Libyan tension and Mena crisis North Africa situation in Europe and those things from Europe have not moved in the month of June. Since they haven't moved and been incapable of adding to bottom-line margins because those were the good jobs which should have moved and created margins for the overseas operations. This is a scenario as on this state, but I am sure six months down the line the things will change and stabilize.
In India, power has slowed down and was slow last year as well. We are hopeful that it will pick up in the second half of the year as the country cannot afford to not place orders for power T&D, even if it has to achieve 7.5-8% growth for 8.5-9% GDP. I am sure that things will fall in place. The stuck up projects due to land, forest and environment issues will be back on track. In a macro view, the single digit growth in power sector should be possible. Crompton Greaves will do better than the sector.
So i initiate a buy on this stock from current level of 170 to a six month target of 240 level