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Wednesday, Jun 22, 2005

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Crompton Greaves open to buys in industrial systems

Shyam G. Menon
Latha Venkatraman

Mumbai , June 21

CROMPTON Greaves, which made an overseas acquisition to grow its transformer business, reserves the possibility of doing something similar for its industrial systems business. There are no immediate plans though.

The company earns 41 per cent of its revenues from power systems, 28 per cent from industrial systems, and 31 per cent from consumer products.

For 2004-05, it reported a 16 per cent growth in turnover from Rs 1,861.05 crore to Rs 2,152.78 crore.

Recently, the company acquired the transformer business of Belgium's Pauwels group, with operations in Belgium, Ireland, Canada, the US, and Indonesia.

The cost of acquisition was 32.1 million euros and it increased the company's market coverage to geographies that account for 47 per cent of transformer sales worldwide.

"Today, the combined business taps 80 per cent of the world market," said Mr S.M. Trehan, Managing Director.

The acquisition is expected to benefit Crompton Greaves's bottomline from 2006-07, as Pauwels was not a profit-making company and would take a year to turn around.

The latter would entail cost management, some shuffling of low-end manufacturing, and supply of select components.

"Large-scale shifting of capacity is out of the question as the acquisition was done to get a presence in those markets," said Mr Trehan said.

Crompton Greaves had said that it would invest 7.5 million euros to strengthen the acquired business.

With growth for 2005-06 estimated at 20 per cent, topline - including Pauwels' (2004 revenues of 257 million euros or Rs 1,366 crore) - should exceed Rs 3,000 crore and graduate into the billion-dollar realm by the next fiscal.

Further, almost 50 per cent of revenues would be from overseas and Crompton Greaves, until now capped in products at the 400 kV limit, would be getting into 500 kV transformers.

Among the three business groups, long-term emphasis and cost advantages are clearly with power and industrial systems. (Crompton Greaves has motors, generators, and railway signalling equipment under industrial systems.)

The company's motors business is the domestic market leader, ahead of Kirloskar, ABB, and Siemens.

"It is also growing at a decent rate. A year down we may strategically think of an overseas acquisition in industrial systems."

The Pauwels acquisition was funded from internal accruals and Crompton Greaves's debt equity ratio is low.

Approach to the consumer products business is a bit different. Mr Trehan concedes that this business adds significantly to brand value but neither scale nor cost is on its side.

Illustrating the critical difference between that business and transformers, he said, "In transformers, 30 per cent of the content is engineering. Fans, on the other hand, are low-tech products."

Notwithstanding this and the natural question thereby of whether its consumer products business may end up as a candidate for prospective divestment, Mr Trehan said that the company intends to grow its domestic leadership in consumer products in the medium term.

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