Dalal Street

Crompton Greaves (CGL) is mainly concentrating in Power Systems, Industrial Systems and Consumer Products and Digital business. CGL is engaged in manufacture, distribution and sale of electrical and electronic equipment/systems.

Positive Triggers

• From FY09 onwards, international business is likely to take the lead in growth given higher margin improvement potential
• Microsol acquisition would increase CGL’s strengths in the area of high-end engineering and sub-station automation capabilities. CGL has acquired three international companies. In all three cases the acquisitions did not involve large capital outlay, resulted in addition of more products and skills and helped increased production capacity.
• The Government of India (GoI) has set a goal of “Power for All” by FY2012E. Investments in infrastructure, particularly in the power generation, and transmission & distribution (T&D) segments, are estimated to be at Rs 1400 billion for T&D alone in the XIth Plan (FY07-FY12).

CGL could end FY08 with an EPS of Rs. 10.5 – 11.25. Though the stock looks steeply valued at the current market price, one could accumulate the stock in the Rs. 270-310 band for a period of 2-4 quarters.

Here is the chart of Ratings and Target stocks prices for all the banks in India. Courtesy SSKI Securities report on Indian banks.

ENAM India Research has maintained a neutral rating on the prospects of Tata Steel with a price target of Rs 657 because of the short term challenges the company is facing rather than the long term gains.

• Equity raising and capacity expansion are the key to future success of Tata Steel
• Higher interest costs on bridge debt financing
• Tax inefficiencies for one of the SPVs (Tata Steel Asia)
• Improving margin by enhancing integrated operations in India

Robust demand growth, driven by strong consumption in China and other EMs. Large Chinese capacity addition to replace old capacities and also for local consumptions. Iron ore – Spot iron of prices currently 50% higher than current contract prices. Expected to rise significantly next
year. Coking coal – prices are expected to move higher next year.

Key risks include financial leverage and low operating margin. Thus maintain a NEUTRAL rating on the stock.