CG POWER & INDUSTRIAL SOLUTIONS LIMITED
Know the Company
CG Power and Industrial Solutions Limited (CG Power) is an Indian multinational company engaged in the design, manufacturing and marketing of products related to power systems and industrial solutions. The company was established in 1937 at Mumbai, India, as Crompton Greaves Limited. Tube Investment of India (TII), part of Chennai-based Murugappa Group took control of the company in November 2020, as part of the resolution process initiated by lenders on the RBI’s directive of prudential framework for resolution of stressed assets. TII infused equity funds of about Rs 700 crores for 54% equity stake in the company, besides subscribing to certain warrants. Presently TII holds 58% stake in CG Power. The company has manufacturing facilities at Goa, Madhya Pradesh (Bhopal, Indore, and Gwalior), and Maharashtra (Ahmednagar, Nashik, and Aurangabad). Its overseas subsidiaries are in Sweden, Germany, and the Netherlands.
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The company’s business segments have been broadly structured into three strategic units such as Industrial, Power and Railways. Its products portfolio includes transformers, switchgear, circuit breakers, network protection & control gear, project engineering, HT and LT motors, Power Automation Products and turnkey solutions, etc. The company’s power systems division manufactures electrical products such as transformers, switchgears, and circuit breakers, which caters to power transmission industry. The industrial systems segment manufactures HT and LT rotating machines including motors and alternators, stampings, as well as railway transportation and signaling products.
Strengths
CG Power is enjoying management support, financial assistance and strong compliance from its parent, the Murugappa Group, after its acquisition of the company. Timely infusion of funds and smooth alignment of the management teams helped the company report substantial improvements in overall performance. Since taking control of about three years back, CG Power turned around and paid dividend in the last FY, after a gap of seven years.
De-leveraging balance sheet
CG Power had an outstanding debt of Rs 2161 crore when it was acquired by TII in 2020. As part of the acquisition scheme, the company had infused Rs 650 crore upfront to lenders, as it got a haircut of Rs 1100 crore from total debt. The company also sold its loss-making overseas subsidiaries. The sale proceeds along with the sale of the company’s surplus property in Mumbai and internal cash accruals were used to clear debt. Now CG Power has become a debt free company.
Strong order book
CG power is the domestic market leader with over 35% market share in industrial motors. Strong brand image and shift towards higher energy-efficient models is expected to help the company improve better market share, going forward. The company’s export order book is also in a good position, for the quarter ended September,2023. New order intake, including exports for the latest quarter was Rs 2,232 crores, a 22% growth YoY and present order book at the end of the quarter stood at Rs 5,229 crores, 44% higher YoY.
Expanding horizon
The company management is keen to explore new business opportunities apart from its existing business segments for strong growth in its revenue and profitability. CG Power recently announced that it is planning to set up an Outsourced Semiconductor Assembly and Test facility in partnership with technology providers at an investment of $791 million over five years. The company has already filed an application with the Ministry of Electronics and Information Technology to get approval for the project and grant of subsidy. The company mentioned that it expects to raise required funds for this project through a combination of subsidy, JV partner’s equity contribution and debt.
Capacity expansion
CG Power has earmarked a capex of over Rs 500 crore for the next two years to expand the capacities at its various manufacturing units. The company proposes to expand its manufacturing capacities of motors at its units located at Ahmednagar and Goa with a Capex of Rs 230 crore and for transformers at its plants in Bhopal and Malanpur with an investment of Rs 126 crore. The company will spend about Rs 155 crore to expand the manufacturing capacity of instrument transformers and condenser bushings, medium voltage switchgear, and GIS units at its Switchgears Division complex in Nashik.
In addition to this, the company will incur around Rs 100 crore of normal capital expenditure per year. It is also looking for a tie-up with a technology partner for the development of motor and controller for electric vehicles (EVs).
Financials improve
For the Q2FY24, consolidated net profit of CG Power stood at Rs 244 crores, 37% growth from Rs 178 crores in Q2 FY2023 (YoY). Revenue for the same quarter was at Rs 2002 crores recording a growth of 18% on a yearly basis from Rs 1696 crores. The company’s half-yearly profit after tax stood at Rs 446 crores, up 81% from Rs 309 crores in the same period last year. Aggregate sales for the half year increased to Rs 3876 crores recording a growth of 15% YoY from Rs 3395 crores. Return on capital deployed (ROCE, annualized) for the Q2FY24 was at 44%.
Outlook
CG Power’s products are widely use in Railways, consumer durable industries and EVs. Railway’s huge Capex and ongoing trend of fast adoption of EVs are a boon for the company. Its proposed venture into the Semiconductor industry is substantially promising with lot of government support. The company applying Capex in phases as well as introducing product mix in line with the surging demand. In Railways, the traction in CG Power’s products should be seen from new orders for Vande Bharat trains, where the market is much higher than traditional locomotives. The company management expects margin expansion in future supported by premiumization of industrial motors, operational leverage and focus on cost control as well as improving exports.
Effective capacity utilization, better product mix and prudent financial exercises will help the company to gain market share with strong margins, going forward. Continued expansion as well as new initiatives in sunrise areas insulate the company away from competition and gives a bright future.
Risk
CG Power is basically engaged in capital goods sector; so any reduction in private Capex and government spending may adversely affect the capacity utilization of the company, and therefore its profitability. Shortage of critical components including semiconductors and other electronics may result in delay in delivery to the customers. Volatility in raw material prices coupled with currency fluctuation may also affect profitability of the company.
Sector: Industrials
Market Price: Rs. 464.80 as on today
FV: Rs 2/-
Stock Name: CG Power & Industrial Solutions Ltd
BSE Code: 500093, NSE Code: CGPOWER
Market Cap.: Rs 69600 Cr
Book Value: Rs. 14.6
Segment: Heavy Electrical Equipment
Incorporation: 1937
Headquarters: Mumbai
