Q1FY24 Review: CG Power & Industrial: Execution slippages hurt growth

28 Jul 2023 , 01:42 PM

• While CGPOWER reported 38/52% YoY growth in Ebitda/PAT on a lower base last year, performance was below estimates with soft execution. While industrial revenues grew by 15%, Power systems was soft at just 8% despite a strong order book, marred by capacity constraints and revenue slippages of ~Rs400-450m.
• Capacity utilizations levels range in 80-90% across units. Healthy volumes, benign commodity costs, higher realisations in industrial systems and savings from operational excellence measures aided 14.2% OPM (-30bps QoQ/ +260 bps YoY). IS Ebit margins were higher QoQ at 15.6% while power sustained 12.1% margins.
• While industrial demand was broad based with water, waste water, infra, Sugar/ ethanol leading growth, weak commodities have kept channel inventory low and run essentially on replenishment basis.
• CG is investing Rs5bn over FY24-25 to expand capacities and modernise its factories. It targets to increase its market share in distribution transformers form 6-7% to 10% levels. Shares in LT motors at 35%, HT motors at 16% and MV switchgears at 17% are steady.
• Inflows were robust (+16% QoQ/ 47% YoY) led by large order wins in Power (domestic +exports) and Industrial (new applications like Nuclear power), driving ~40% jump in order book and enhancing visibility for FY24-25. Analysts of IIFL Capital Services raise FY24/25/26 EPS by 3/6/6%, respectively.