BackCrompton Greaves to demerge consumer products unit
Stocks of the firm rise 16% after annoucement that the consumer products business with be listed separately
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Mumbai: Crompton Greaves Ltd, which makes products ranging from transformers to electrical appliances, on Thursday said it is planning to separate its consumer products business unit into a publicly traded company.
The move comes a few month after The Economic Times reported that promoter Gautam Thapar might sell his stake in the business. Although Crompton denied the report, analysts say this may be the first step towards a potential stake sale.
On 16 April, the newspaper had reported that Hitachi, the Japanese maker of industrial power equipment and electronic goods, has emerged as the front-runner to buy Thapar’s 42.7% stake in Crompton. Hitachi subsequently denied this report, according to a Business Standard report.
“A consumer durable goods company independently can get a higher valuation compared to what it can with the existing business. So what Crompton is doing essentially is unlocking value from this business and a potential stake sale cannot be ruled out," said a Mumbai-based analyst with a foreign brokerage. He requested anonymity since he was not authorized to comment on this matter.
Brokerage Religare Research values the consumer business at ₹ 80 per share, compared to a valuation of ₹ 52 a share for the power systems segment and ₹ 31 per share for the industrial systems unit.
“The consumer business has an earnings before interest and tax (EBIT) margin of 11.9%, and is essentially a trading business with a lower capital employed," Religare said in a note.
Shares of the company rose as much as 16.6% in intra-day trading on Thursday after the announcement. The stock closed at ₹ 210.85, 13.45% higher, while the benchmark Sensex rose 0.04% to 25,561 points.
Fans, appliances, lighting, pumps, home automation, integrated security systems and wiring accessories come under the consumer products business unit.
The company has two more business divisions: power systems (that makes switch gear products) and industrial systems (that makes generators).
In a filing to BSE, Crompton Greaves said its board met for an annual strategic review meeting on 16 July at Mechelen, Belgium, and “proposed to demerge its consumer products business unit into a separate listed company".
“The board believes that such a demerger will create better growth opportunities for its two large but significantly different businesses: power, industrial and automation which is a B2B (business to business); and the consumer products business which is B2C (business to consumer)," the company said.
“The board also believes that this will create a more flexible capital structure for the two businesses to grow independently, allow them to pursue more ambitious strategic goals and, thus, create further value for existing shareholders."
The board has constituted a committee of directors to examine all relevant aspects of the process of demerger and listing and make suitable recommendations.
Crompton Greaves did not disclose more details.
For the quarter ended 31 March, the consumer products division registered a revenue of ₹ 748.36 crore, contributing a little more than one-third to the company’s total revenue.
The company off late has been focusing more on its consumer durables segment. For instance, in the 2014 fiscal, Crompton focused on increasing its reach by adding 11,150 new retailers and 194 distributors, according to the annual report.
It is also deploying lean manufacturing processes, and increasing its product offerings. The company has introduced a new range of pumps, electric kettles and rice cookers in the appliances segment.
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