The company’s order inflow showed robust growth, increasing by 45% year-on-year to ₹6,276 crore, contributing significantly to the sharp rise in share prices today.
The company reported a 15% year-on-year growth in revenue in Q4, in line with expectations set by Kotak Institutional, despite a modest 3% year-on-year growth in EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) and a 4% growth in PBT (Profit Before Tax) excluding other income.
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The PBT remained consistent with expectations, experiencing 7% year-on-year growth due to unexpectedly high levels of other income. Full-year revenue, EBITDA, PBT and PAT grew 15%, 13%, 16% and 14%, respectively.
Analysis from Kotak Institutional Equities indicates that while the power systems segment exhibited high margins, this was offset by weaker profitability in industrial systems. However, the industrial systems segment contributed significantly to the strong order inflows, particularly driven by the railway business.
The company anticipates 40% growth in its railway business, which currently contributes 15% to its overall revenues, in the upcoming year. Additionally, it foresees growth in the power systems business, which constitutes 30% of revenues, as it aligns with its existing capacity constraints, which are expected to be resolved by FY2026.
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On the power systems business, it shared the prospects of doubling the existing scale just by serving domestic demand. It is less certain of the growth in the low voltage motor business (33% of business), where market growth has stalled, competition has intensified, and CG Power already has a large market share.
Furthermore, the brokerage noted that the consumer products portfolio, which represents 6% of sales, is experiencing the impact of a stagnant to declining market.
The brokerage noted that the company is unlikely to increase exports in FY2025 but anticipates beginning of this expansion in FY2026, following the commissioning of its new motor capacity. However, the company has not yet finalised its strategy for the drives business in India, contemplating between domestic manufacturing and importing from its European subsidiary.
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There is potential for significant progress in the EV motors and controllers business, as an OEM is currently testing CG Power’s product and the company is in discussions with several other customers. However, the company did not provide any new insights regarding potential partnerships in the railway propulsion sector.
Good time to buy?
Following the company’s financial performance, the brokerage has revised its estimates downward by 4–6% for the fiscal years 2025–2027.
It has raised the fair value (FV) to ₹400, up from ₹370, due to the increased value of the ATMP business, higher medium-term projections, and the transition to the June 2025 estimated discounted cash flow-based fair value.
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Maintaining its ‘Sell’ rating on the stock, the brokerage highlights the stock’s high valuation at 75 times the one-year forward earnings, excluding the value of the ATMP business.
Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.
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Published: 07 May 2024, 11:09 AM IST
