The stock of Crompton Greaves fell 13 per cent in the last 2 trading sessions, after the September quarter results disappointed markets once again. Net profits for the consolidated entity for the quarter declined 45.6 per cent over a year ago, despite a 12 per cent growth in sales. Significant increase in inputs costs and pressure on realisations dragged margins; a phenomenon seen in the June quarter as well. With the latest financials, Crompton Greaves has seen decline in profits for three consecutive quarters, over a year ago.

This performance is not entirely surprising on two accounts: one, there has been a drying up of power transmission and distribution orders in the country, thanks to delays in commissioning power generation projects. Two, the presence of Korean and Chinese players in the domestic transformer space has been causing trouble for most medium-sized players such as Crompton Greaves. The pressure on volume and realisation is evident in power equipment players such as ABB and Areva T&D.

What came as a surprise in the case of Crompton Greaves, though, was the delayed effect of the same on the financials. The impact was also pronounced as a result of Crompton Greaves' relatively higher exposure to the Middle East North African region, as well as presence, through subsidiaries, in European nations, both of which are reeling under political/economic uncertainties.

Improvement over June quarter

This said, both sales and profits at the operating and net level have shown improvement over the depressed June quarter. Consolidated net profits jumped 49 per cent to Rs 117 crore. Profit margins too have recovered from the abysmally low levels of the first quarter of FY-12. Operating profit margins improved to 5.6 per cent in the latest ended quarter from 4.9 per cent. This comes from an improvement in margins of the company's mainstay power systems segment. However, not all is well in the consumer products space, which accounts for a fifth of sales. Segment margins of consumer products slid over 200 basis points sequentially to 11.2 per cent. Higher profitability in this segment is crucial to lift overall margins.

This quarter appears to suggest that Crompton Greaves may have left the worst behind in the June quarter. However, a revival in domestic transmission and distribution orders, much of it from Power Grid Corporation could be the only trigger for a bounce back to normalcy for Crompton Greaves and for the entire power transmission equipment industry.

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