Chart: Why brokerages are betting on Crompton Greaves

Crompton Greaves has shot up 20 percent in the last one month , much higher than the nine percent gain posted by the Sensex. And the stock is up another 3.5 percent today as many brokerage firms turn bullish on the company.

While Bank of America Merrill Lynch (BoA-Ml) maintains its buy rating on the stock with a price target of Rs 151, reflecting a jump of 16.5 percent, Angel Broking is also bullish on the company.

[caption id="" align=“aligncenter” width=“485” caption=“Chart by Sanjit Oberai/ Firstpost”][/caption]

The company’s decision to cut a third of its jobs at its Belgium operations augurs well. The shift in the manufacturing unit from high-cost Belgium to low-cost Hungary and Ireland in the European Union should support international margins, said BoA-ML in its latest report. This move benefits the company as hourly compensation rates in Hungary and Ireland are 84 percent and 30 percent lower than Belgium (see chart).

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This is in line with the managements plan to relocate its operations to low cost countries and restructure its European operations in the next three years.

The company’s margins, which bottomed out during the March 2012 quarter, are also expected to improve during the financial year 2013/14 due to execution of improved quality of orders in international power backed by higher inflows from Americas and execution of EU wind offshore projects.

For the year ended March 2012, the company reported a 58 percent fall in net profit to Rs 367.6 crore on a 12.4 percent jump in net sales.

 Crompton is a leading industrial company and is part of the Avantha group. It has presence across three primary sectors, power transmission and distribution, industrial automation and consumer products. Crompton has a footprint in Asia, Europe, North America and MENA. It has India’s largest manufacturing capacity of power transformers (40000MVA)and a global capacity of additional 45000MVA. It is also a leader in the electric fans segment with a 24 percent market share.