>CROMPTON GREAVES (KOTAK SECURITIES)

■ Results beat expectations led by strong margin expansion.
Higher-than-expected operating margins helped trounce sedate revenue growth. The industrials segment reflected weakness with power and consumer reporting strong growth and margin expansion for the quarter. Management lowered revenue growth guidance upon continued weakness in the industrials segment. Inflows degrowth in 1Q is likely to be temporary and should pick up from 2Q. Reiterate ADD with a target price of Rs31

■ Higher-than-expected margins help beat expectations
Crompton reported consolidated revenues of Rs22 bn in 1QFY10, up 8% yoy, from Rs20.3 bn in
1QFY09 slightly below our expectations. The margin expansion was led by lower raw material
expenses as a percentage of sales. Higher margins and lower interest expenses helped the
company beat our bottom line expectations.

Crompton reported standalone revenues of Rs11.7 bn (up 8.4% yoy) versus our expectation of
Rs10.8 bn. Profit after tax was reported at Rs1.1 bn, up 29% yoy, from Rs889 mn in 1QFY09.
Operating profit margin for 1QFY10 was reported at 14.8% (210 bps expansion) versus our
expectation of 12.8%.

■ Slight correction in revenue growth guidance led by slowdown in the industrial segment
The management guided for a revenue growth of 12-14% at a standalone basis and 4-5% on a
consolidated basis down from a guidance of 15% earlier. The growth is likely to be driven by the
power and consumers segment with de-growth expected in the industrial segment. The management cited that the industrial capital expenditure still seems to be on the hold. The
management has guided for a revenue growth of 20% for the power segment and about 14% for
the consumers segment with de-growth of 2-3% expected in the industrials segment. We have
built in a revenue growth of 11.5% for FY2010E with flat margins on a yoy basis.

■ Marginally revise estimates; maintain target price at Rs315/share and reiterate ADD
We have marginally revised our consolidated earnings estimates to Rs17.7 and Rs20.3 from Rs18.4 and Rs21.3 for FY2010E and FY2011E, respectively. The changes are based on slightly lower revenue growth assumptions and flat margins based on revised guidance by the management. We have maintained our target price at Rs315/share based on a target multiple of 15X FY2011E earnings.

We reiterate our ADD rating on the stock based on (1) the sharp discount to peers, (2) relatively
attractive valuations, (3) diversity of exposure, and (4) resilience of business.

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