Fundamental Analysis of CG Power: Electricity consumption has risen since the Industrial Revolution and is expected to rise further as the population, income, and economy grow.
Engineering or capital goods aid in the establishment or production of goods on a large scale and the company we will look at is primarily involved in the production of electrical equipment. In this article, we will take a look Fundamental Analysis of CG Power & Industrial Solutions Ltd.
Fundamental Analysis of CG Power
Company Overview
CG Power was established in 1937. Colonel REB Crompton, who in 1878 founded a business at Chelmsford, later REB Crompton & Co., merged with F&A Parkinson Limited. Later, CPL established its wholly owned Indian subsidiary, ‘Crompton Parkinson Works Ltd.’, in Mumbai, along with a sales organization, ‘Greaves Cotton & Crompton Parkinson Ltd.’
The company was taken over by an Indian industrialist – Lala Karamchand Thapar. Thapar Group created Crompton Greaves Limited to meet the electrical demand of B2B and consumer segments. The company has been involved in the manufacturing, sales, and application of electrical energy. 17 manufacturing facilities and the presence of the company are spread across nine countries, including Asia, Europe, and North America.
Transformers, switchgear, circuit breakers, network protection and control gear, project engineering, HT and LT motors, drives, power automation products, and turnkey solutions in these areas are all part of the company’s portfolio, which improves many aspects of industrial and personal life.
Tube Investments of India Ltd. (TII), a Murugappa Group company, acquired a controlling stake in CG Power and Industrial Solutions Ltd.
Segment Analysis
Power Systems contributed 29.01% of the company’s revenue in FY23, Industrial Systems contributed 70.77%, and Others contributed 0.23%. Overseas accounts for 90.03% of the geographical segment, while domestic accounts for 9.96%.
The capital goods industry accounts for 12% of India’s manufacturing output and 1.8% of GDP. The largest sub-sectors in India are electrical equipment, plant equipment, and earthmoving/mining machinery.
The electrical equipment market share in India is expected to grow by US$33.74 billion at a CAGR of 9% between 2021 and 2025. The domestic electrical equipment market is expected to grow at an annual rate of 12% to reach US$ 72 billion by 2025.
Electrical machinery and equipment shipments increased by nearly 90% to Rs. 13,606 crore (US$ 1.6 billion) in April-July 2022, up from Rs. 7,202 crore (US$ 869 million) the previous year.
CG Power – Financials
Revenue and Net Profit
The company’s revenue from operations stood at Rs. 6,972.54 crore in FY23 as compared to Rs. 5,483.53 crore in FY22, an increase of 27.15%. However, the CAGR over five years was -3.37%.
Net profit of continuing operations for FY23 stood at Rs. 962.97 crore as compared to Rs. 913.07 crore in FY22, an increase of 5.46%. Net profits have fluctuated over the years, from a loss in FY19 and FY20 to a profit in later FY21. The net profits for FY22 and FY23 include Rs. 283.46 crore and 166.64 crore from discontinued operations, respectively.
Some subsidiaries were dissolved, profit was made from the sale of the land, and liquidation of some of its subsidiaries is underway. CG Power Solutions Limited, CG Power Equipments Limited, PT Crompton Prima Switchgear Indonesia, CG Sales Network Malaysia Sdn. Bhd., and QEI LLC are subsidiaries that were discontinued in FY23.
| Particulars/ Financial Year | Revenue from Operations (Cr.) | Net Profit (Cr.) |
|---|---|---|
| 2022-23 | ₹ 6,972.54 | ₹ 962.97 |
| 2021-22 | ₹ 5,483.53 | ₹ 913.07 |
| 2020-21 | ₹ 2,963.95 | ₹ 1,279.54 |
| 2019-20 | ₹ 5,109.88 | – ₹ 1,331.14 |
| 2018-19 | ₹ 7,997.91 | – ₹ 2,797.63 |
| CAGR (4 Years) | -3.37% | – |
Profit Margins
The company OPM stood at 14.41% in FY23 compared to 11.79% in FY22. The average over 5 years stood at 6.95%. The margins are low in FY20 and picked in later years with the Highest being in the current year.
NPM stood at 11.42% in FY23 compared to 11.48% in FY22. The average over 5 years stood at 6.80%. The margins have fluctuated drastically. In FY21 the rise in NPM was due to an increase in exceptional items and a change in deferred tax treatment.
| Particulars/ Financial Year | OPM (%) | NPM (%) |
|---|---|---|
| 2022-23 | 14.41% | 11.42% |
| 2021-22 | 11.79% | 11.48% |
| 2020-21 | 3.91% | 43.17% |
| 2019-20 | 0.74% | -25.91% |
| 2018-19 | 3.92% | -6.15% |
| Average (5 Years) | 6.95% | 6.80% |
Return Ratios
The RoE stood at 53.77% in FY23 compared to 90.98% in FY22. The loss in FY20 turned the shareholder fund negative, and the following year the fund was breakeven, resulting in the exponential growth in returns in FY22. Interest cost reduction helped the ratio. RoCE stood at 52.25% in FY23 compared to 43.58% in FY22. The average stood at 24.21%.
The high ROE and RoCE in the recent financial year indicate that the company has given a good return on the shareholder’s capital and has also efficiently used its overall resources.
| Particulars/ Financial Year | RoE (%) | RoCE (%) |
|---|---|---|
| 2022-23 | 53.77% | 52.25% |
| 2021-22 | 90.98% | 43.58% |
| 2020-21 | N.A | 10.04% |
| 2019-20 | N.A | 13.06% |
| 2018-19 | N.A | 2.13% |
| Average (5 Years) | – | 24.21% |
Debt Analysis
The negative average was caused by a negative shareholder fund as a result of losses in those years, which later rebounded to positive. As of FY23, the company’s Debt to equity of the company was nil because of its complete reductions in debt.
Interest coverage stood at 65.50 times in FY23 as compared to 10.23 times in FY22. Profit has increased and interest costs have decreased, putting the company in a good position to pay off its debts.
| Particulars/ Financial Year | D/E | Interest Coverage |
|---|---|---|
| 2022-23 | 0 | 65.50 |
| 2021-22 | 0.35 | 10.23 |
| 2020-21 | -11.38 | 1.11 |
| 2019-20 | -0.84 | 0.14 |
| 2018-19 | 1.28 | 0.24 |
| Average (5 Years) | -2.11 | 15.44 |
Key Metrics
We will look into some of the Key Metrics of CG Power Ltd.
| Particulars | Amount | Particulars | Amount |
|---|---|---|---|
| CMP | ₹ 447.85 | Market Cap (Cr.) | ₹ 68,315 |
| Price to Book Value | 38.23 | P/E (TTM) | 62.22 |
| RoE | 39.19% | RoCE | 49.83% |
| Promoter Holdings (%) | 58.11% | EPS (TTM) | ₹ 7.2 |
| Dividend Yield | 0.33% | FII Holdings (%) | 16.05% |
| Enterprise Value (Cr.) | ₹ 45.109.11 | Net Profit Margin (%) | 11.42% |
Future Plans
- The company intends to expand the motor manufacturing capacity at its Ahmednagar and Goa plants, as well as the transformer manufacturing capacity at its Bhopal and Malanpur plants. These projects would involve an aggregate outlay of 400 crores to be incurred over the next two years.
- The company has announced that it will embark on a semiconductor assembly and testing project worth approximately Rs 6,500 crore, and they are seeking approval and a subsidy for it.
- CG is exporting power transformers to upgrade electricity networks in emerging African countries from 132kV to 225kV and 330kV.
- It plans to expand its export market by formulating specific strategies for motors and alternators, drives, and automation. The company aims to strengthen its distribution network in North America, Europe, the Middle East, and Africa.
- CG Power is considering expanding operations in the cement, sugar, paper, steel, and oil and gas sectors by developing higher-value products in those specific segments.
Conclusion
As we near the article’s conclusion, we will take a brief look at the company.CG Power in the engineering sector has the potential to grow as consumption and the economy improve.
However, capital goods companies perform well during economic growth due to capex plans by various companies and government support but struggle during economic downturns. Leveraging opportunities in good times can help any company grow. What do you think about the potential of this company? Let us know your views in the comments section below.
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