CG Power and Industrial Solutions Ltd
was hammered yesterday following poor Q4FY18 results. The stock has continued its losing streak on the bourses and is down ~10% in today’s trade so far.
CG Power’s Q4FY18 consolidated sales increased by 18.1% yoy to Rs1,792.4cr from Rs1,517.6cr (net of excise duty) in Q4FY17. EBITDA has increased by 34.5% yoy to Rs143.5cr from Rs106.6cr in Q4FY17, while EBITDA margin increased from 7% in Q4FY17 to 8% in Q4FY18. Owing to one-time expenses related to litigation claims and set of write-offs in relation to inventories and other receivables, the company reported a net loss of Rs389.6cr vs Rs41cr in Q4FY17. Adjusting for exceptional loss, net profit has declined by 15% yoy to Rs24.6cr.
The company’s standalone sales have grown by 21.5% yoy to Rs1,430cr and adjusted PAT has grown by 31% yoy to Rs62.7cr, while EBITDA margin has expanded by 120bps to 8.1% in Q4FY18.
The write off included ~Rs100cr for funding losses in its subsidiary - CG Electric Systems Hungary Zrt, ~Rs150cr pertaining to EPC division wind-off, and ~Rs155cr inventory write-off in transformers business. CG power has been funding international losses (Hungary, Belgium) through its standalone business. As a result, the company’s debt has gone up to Rs1,730cr in Q4FY18.
In addition, Hungary subsidiary’s sale has been postponed to June 2018. In February 2018; CG Power had executed business transfer agreement and share sale and purchase agreement for the subsidiary for an enterprise value of Euro38mn with Ganz Villamossagi Zrt and Alester Holdings Ltd. The closing of the sale was expected to be on or before March 31, 2018.
Further postponement is a negative development as the company will have to absorb Q1FY19E losses (around Rs100cr) of its subsidiary in its books.
Hence, a weak balance sheet and uncertainty towards the timeline for subsidiary sale has made investors wary leading to huge sell-off in the stock despite the good performance on sales and operating front.
The core business fundamentals for the company, however, remain intact. Its Industrial Systems has witnessed strong growth in rail, motors and drives, while Power Systems also had a stable growth in FY18. CG Power is likely to maintain margins in FY19E despite input cost pressures and rupee depreciation. The company is banking on better order mix, cost optimization and timely price increases to maintain margins.