Crompton GreavesDiversification or Diworsification
Printed From: The Equity Desk
Category: Market Strategies
Forum Name: Management
Forum Discription: A bad management in a good business is worse then a good management in a bad business. Discuss the techniques to segregate the good management from the bad ones.
URL: http://www.theequitydesk.com/forum/forum_posts.asp?TID=2104
Printed Date: 28/Jun/2024 at 9:21am
Topic: Crompton GreavesDiversification or Diworsification
Posted By: basant
Subject: Crompton GreavesDiversification or Diworsification
Date Posted: 24/Mar/2009 at 5:35pm
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I just started buying this when the dreaded news of that group invetsment came in the I exited out of the fear of the unknown. Now why does this company have to put money in an unlisted power company as a minority shareholder of 41% stake?
Till I get clarity I thought I can wait with CG and hence took a Rs 6 loss per share (136-131) intraday.
It wasn't a great feeling to have a red mark but can anyone explain what was going on please?
------------- 'The Thoughtful Investor: A Journey to Financial Freedom Through Stock Market Investing' - A Book on Equity Investing especially for Indian Investors. Book your copy now: www.thethoughtfulinvestor.in |
Replies:
Posted By: basant
Date Posted: 24/Mar/2009 at 6:25pm
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This is their attempt to get into a low RoE power generation business? It was nowhere in the Board meeting agenda and suddenly it came up from nowhere.
May be I am missing something but if I am not then this stock will upset the institutional guys!
http://www.moneycontrol.com/stocks/stock_market/corp_notices_details.php?autono=235793 - http://www.moneycontrol.com/stocks/stock_market/corp_notices_details.php?autono=235793 ------------- 'The Thoughtful Investor: A Journey to Financial Freedom Through Stock Market Investing' - A Book on Equity Investing especially for Indian Investors. Book your copy now: www.thethoughtfulinvestor.in |
Posted By: chimak10
Date Posted: 24/Mar/2009 at 1:26am
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well i do not know much about what u are talking about..but.........
basant bhai i am right now reading a old issue of businessweek magazine ( 12/5/2008 ).........which has cove sotry about thaper and such........it mentiones following. never short of ambition, GT is now planning a plunge into next logical business - power generation. he is planning to invest 1.5 billion into building two power plants of 1,200 MW each but under a sepearte company called BILT power & infrastructure. he has also diversified into other areas : global green, his pacakgeed food firm........ |
Posted By: Hitesh Shah
Date Posted: 24/Mar/2009 at 9:39am
Any other matters with the permission of the Chair? Ha! Ha! Ha! ------------- |
Posted By: basant
Date Posted: 24/Mar/2009 at 10:08am
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Some people don't change and Thapars may well be included in that list with the Birlas, Bangurs and the Goenkas. They have a concal at 9.30 and i see no reason why that should change sentiments unless they withdraw this right to suck money from the listed company into an unlisted company.
------------- 'The Thoughtful Investor: A Journey to Financial Freedom Through Stock Market Investing' - A Book on Equity Investing especially for Indian Investors. Book your copy now: www.thethoughtfulinvestor.in |
Posted By: Hitesh Shah
Date Posted: 24/Mar/2009 at 10:29am
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Meanwhile there's http://www.business-standard.com/india/news/crompton-power-packed-agenda/352830/ - this .
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Posted By: Vivek Sukhani
Date Posted: 24/Mar/2009 at 10:51am
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At least, they had a very investor friendly scheme in BILT and I did make a very good exit owing to that scheme of reorganisation. I have very high regards for Gautam thapar and until and unless we know what is that we are getting through the investments, I think its ridiculous to pass a comment on the integrity of the management. In any case, they are buying assets at book-value and not at a premium. As a matter of disclosure, i dont have any holding in CG, nor do i intend to have. just that i saw some comments on the management integrity, I thought it fit to post my reply. ------------- Jai Guru!!! |
Posted By: Hitesh Shah
Date Posted: 24/Mar/2009 at 11:00am
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Picked up some today.
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Posted By: Vivek Sukhani
Date Posted: 24/Mar/2009 at 11:09am
Good move. Dont get too distracted with all that you may hear or see!!!!
------------- Jai Guru!!! |
Posted By: Hitesh Shah
Date Posted: 24/Mar/2009 at 11:15am
Their products are good quality. ------------- |
Posted By: praveen
Date Posted: 25/Mar/2009 at 12:46pm
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Did some digging today
Please refer
http://marketinfo.livemint.com/Research.asp?pageName=Reports&ReportType=HIS&CompanyCode=13150001&CompanyName=Crompton+Greaves+Ltd%2E&Ticker=CromptonGrev&MajorSector - http://marketinfo.livemint.com/Research.asp?pageName=Reports&ReportType=HIS&CompanyCode=13150001&CompanyName=Crompton+Greaves+Ltd%2E&Ticker=CromptonGrev&MajorSector =
They have a history of trying to diversify/diworsify as the case may be in the"hot sectors" that era from cellular operations in 1990s to online business in "2000s" to say power generation in 2008.
After going through their profile, I come to a conclusion that
1. They have a tendency to shift their focus away from their core business.
2. They are stingy as far as dividend pay-out is concerned.
However they did pay-out bonus shares from time to time.
Current situation
Now my gut feeling tells me that why would management act so dumb that it would try to repeat something on the lines of what Satyam did knowing well in advance, the market reaction to it.
The few explaination I can think of is
1. They generally felt that their case is genuine and substantially different and they can convince the market about it. But in that I case I wonder why not take a share-holder approval even if its not required?
2. Trying to act too smart and increase share holding by trying to depress prices and doing share-buy back at that prices. This should be ruled out considering the associated the damage to the reputation.
3. They are so desperate for funding the APIL that they don't care.
In any case they should have come out with a lot more information about APIL and why buy just 41% and stuff like that.
Can some one throw more light on pledged shares if any by cromton greaves management.
Details of independent directors and their pedigree?
------------- The quest for knowledge is a never ending Journey |
Posted By: Hitesh Shah
Date Posted: 25/Mar/2009 at 12:56pm
This from their last AR: Non-executive, independents S Bayman O Goswami S Labroo M Pudumjee SP Talwar V von Massow ------------- |
Posted By: Hitesh Shah
Date Posted: 25/Mar/2009 at 1:05pm
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If O Goswami is Omkar, then he has opinions on everything! And I think SP Talwar has / had the distinction of being on the highest number of boards. Could be wrong here. Posting from memory. ------------- |
Posted By: praveen
Date Posted: 25/Mar/2009 at 1:18pm
Info on 2 people
S Bayman
"Scott R. Bayman served as Head of Operations for India of General Electric Co. Mr. Bayman served as President and Chief Executive Officer of GE India since April 1993. He joined GE in 1987 as Manager of Business Development for GE Appliances in Louisville. Mr. Bayman served as Product General Manager for range products, and in 1991, was elected a GE Vice President responsible for Appliances Consumer Service. At GE, he served as Vice President, Worldwide Marketing and ... Product management for GE Appliances. Mr. Bayman's previous work experience includes positions as a Management Consultant with Booz, Allen & Hamilton Inc. and Director of Corporate Strategic Planning of United Technologies Corporation. He has also worked for General Motors and AT&T in a number of positions. He has been Independent Director of Punj Lloyd Ltd., since May 31, 2007. He serves as a Director (Member of Governing Board) of Indian School of Business. He has been Non-Executive Director of KSK Power Ventur PLC since December 10, 2007. Mr. Bayman serves as a Senior Director of Stonebridge International, LLC. He has been an Additional Director of Crompton Greaves Ltd since March 21, 2007. He serves as Director of Jubilant Energy, Amsterdam. He serves on the International Advisory Boards of the Indian School of Business and the University of Pennsylvania's Center for the Advanced Study of India. He is on the Board of Trustees of Aspen India. He is a member of the Board of the US India Business Council, trustee for Aspen India and past Chairman of the American Chamber of Commerce India. Mr. Bayman holds a Masters degree in Management from the Alfred P. Sloan School of Management, MIT, Massachusetts where he was a Sloan Fellow. He graduated with a Bachelor of Science degree in Business Administration from the University of Florida."
M Pudumjee (promoter of Thermax)
I have tremendous respect for Thermax, and because of her presence as an Independent dir. I am willing to give benefit of doubt to CG. ------------- The quest for knowledge is a never ending Journey |
Posted By: Hitesh Shah
Date Posted: 25/Mar/2009 at 1:25pm
Second that! ------------- |
Posted By: atulbull
Date Posted: 25/Mar/2009 at 1:50pm
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Corporate governance issue rattles
Crompton Greaves counter Crompton Greaves plunged 9.95% to
Rs 110.05 at Meanwhile, the BSE Sensex was up 96.58 points, or
1.02%, to 9,567.62. On BSE, 16.18 lakh shares were traded in the counter. The stock
had an average daily volume of
1.66 lakh shares in the
past one quarter. The stock hit a high of Rs 118.90 and a low of Rs 107.25 so far
during the day. The stock hit a 52-week high of Rs 289.90 on The mid-cap stock had underperformed the market
over the past one month till The company's current equity is Rs 73.31 crore. Face value per share is Rs 2. The current price of Rs 110.05 discounts the
company's Q3 December 2008 annualized EPS of Rs 9.25, by a PE multiple of
11.89. The Crompton Greaves stock had tumbled 9.69% to Rs
122.15 on APIL is engaged in the business of generation,
transmission and distribution of electricity. The investment to be made at book value estimates each APIL share at Rs
11. Analysts also said it would have been better if cash on the company's books
was deployed in the core business. Meanwhile, Crompton Greaves' board on Tuesday also
approved a plan to buy back of up to 25% paid up capital of the company at a
maximum price of Rs 170 each, aggregating to Rs 224.15 crore. The company also
declared an interim dividend of 25% or Rs 0.50 per share. Crompton Greaves' net profit rose 24.8% to Rs
84.77 crore on 18% increase in net sales to Rs 1079.76 crore inQ3 December 2008
over Q3 December 2007. Crompton Greaves is engaged in providing power
systems, consumer products and industrial systems. Crompton
Greaves had on Source:capital market ------------- Price is what you pay.Value is what you get. |
Posted By: Vivek Sukhani
Date Posted: 25/Mar/2009 at 1:58pm
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See, people seem to be in hangover of Satyam fiasco......corporate governance is the buzz word.
I am amzed to see why are people making such a hue and cry about this deal. Great Eastern Shipping has floated Greatship and has put so much money over there, did any one ask? P'retail has opened so many ventures and is yet to deliver the results, did anyone ask?
If I would have been a shareholder of CG, my only question would have been on the finacial return expected out of this investment, meaning RoIC. Am surprised no one is talking about that!!!!!!
------------- Jai Guru!!! |
Posted By: basant
Date Posted: 25/Mar/2009 at 2:02pm
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This stock will suffer from a PE derating from two counts:
1) Management - decision to move money into apromoter group company without shareholder approval.
2) Getting into a low RoE business from a high RoE business.
Clearly the power company could not raise money and Mr. Trehan obliged the promoter by getting aresolution passed at the Board meet!
Such resolutions should always be passed at shareholder meetings but promoters take refuge from the law which gives them liberty but as an invstor I do not care about the law and the spirit all I care is if I am to buy a dull power generating company why would I not look at NTPC.
Companies with multi discplined businesses trade at lower valuations compared to focussed companies.
------------- 'The Thoughtful Investor: A Journey to Financial Freedom Through Stock Market Investing' - A Book on Equity Investing especially for Indian Investors. Book your copy now: www.thethoughtfulinvestor.in |
Posted By: smartcat
Date Posted: 25/Mar/2009 at 5:59pm
GE Shipping and Pantaloon are the majority shareholders in their (mis)adventures - unlike CG that owns only 41% of an unlisted group company.
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Posted By: Hitesh Shah
Date Posted: 25/Mar/2009 at 6:20pm
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http://www.moneycontrol.com/india/news/business/crompton-greaves-not-toavantha-stake-beyond-41/390270/0 - Crompton Greaves not to up Avantha stake beyond 41% Published on Wed, Mar 25, 2009 at 14:37 , Updated at Wed, Mar 25, 2009 at 17:19 Source : CNBC-TV18 The market has given thumbs down to Crompton Greaves' plans to pick up 41% stake in Avantha Power & Infrastructure Company. Defending the deal, SM Trehan, Managing Director of Crompton Greaves, said there is a good future for investment in power generation in the country, and hence we have taken this decision. However, he was quick to add that the company will not increase stake in Avantha beyond 41%. "The acquisition will be funded by internal accruals and we will not need to raise funds. We do not plan to raise more debt for Avantha." According to him, shareholder approval for investment in Avantha is not required under law. Also Read: Crompton Greaves board okays share buyback; stk up Here is a verbatim transcript of the exclusive interview with SM Trehan on CNBC-TV18. Also watch the accompanying video. Q: Can you explain the rationale of this decision to buy up Avantha? A: Crompton Greaves strongly feels that there is a good future for investment in power generation in the country. There is a shortage of energy in the country and getting into a company, which is already producing 125 megawatts of energy, is wise. In another three months it will be producing 165 MW—another 40 MW coming into play. Q: But the bigger question that shareholders are asking is that, even though it is not required, shouldn’t you have taken a shareholder note before going for this. Because we have had recent instances in the past, where the markets haven’t liked this kind of an investment? A: Shareholders’ nod is not required by law with this sort of an investment—just Rs 227 crore—and with the size of Crompton Greaves and its reserves under Section-372A. It is not a marginal case. Q: Did you evaluate rival choices? Did you look at other rival power companies that you may have taken? A: We looked at a number of power companies and this is the best valuation, where at book value we could get into. Continued on Page 2 ... Q: We have got about four to five brokerage reports on the same. The consensus is that is a bit of a thumbs down. Especially because considering the fact, that even if you are valuing the company at a book value, the business that Avantha is in right now is not finding too much funding the business overall. You must have seen lot of companies which are listed being available at half time book or at about 4.4x book? A: How many of those companies that have coal linkages tied up, land for the project already tied up, the long-term linkages done, water allocation done, terms of reference (ToR) approved, Ministry of Environment and Forest clearance done, environmental impact statement (EIS) study completed, letter of intent (LOI) issued for the main plant equipment, engineers appointed etc. At this stage, are we talking on a paper project or we are talking on a real project, which is in an advance stage of an IPP of 2x600 megawatts. Q: Can you tell us how earnings per share (EPS) accretive this project will be in FY10 and in FY11? A: It will be accretive and I don’t give normal figures because of forward looking statements. But, if you look at Avantha, this company’s next year’s profit will be about Rs 45 crore. You know how much we have invested and you can easily calculate that it is going to add to the accretive EPS of Crompton Greaves. Q: Would you have to raise any money from the market or from banks? A: We won’t be raising any money from the market or the banks; these are all cash and internal accruals of Crompton Greaves standalone company. We still have cash of the foreign 100% subsidiaries of Crompton Greaves. Q: The company’s stock has fallen about 25% in the last two days, so sure there are concerns from shareholders. So, in that sense, if the feedback is, that this deal is not good for Crompton Greaves, would you at some point reconsider this deal? A: No, we will not reconsider because the management, the board and myself, we are convinced that this deal is in the best interest of Crompton Greaves shareholders. Q: What about this 41%, do you plan to take it to 51%? A: No, we will not be taking it to 51%, because we don’t want to burden Crompton Greaves balance sheet with the debt of a power project. Also, because we have our own plans of growing into the other three wings, this is going to be the fourth wing in our industrial drives and automation motors and consumer products. So it will be a strategic investment that means it will be anywhere greater than 26% to less than 51%. ------------- |
Posted By: Vivek Sukhani
Date Posted: 25/Mar/2009 at 7:10pm
And how does that matter???!!!!!???? You own 41 p.c., you have to pay less....you own 100 p.c., you end up paying more. If its a mis-adventure, then the lesser stake you acquire, the better it is.
Boss, in these promoter-run companies, the diktat of the promoter will work. Take it....or leave it, your choice!!!! ------------- Jai Guru!!! |
Posted By: tigershark
Date Posted: 25/Mar/2009 at 9:47pm
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we now know why an hdfc bank is superior to a cg.
------------- understanding both the power of compound return and the difficulty getting it is the heart and soul of understanding a lot of things |
Posted By: basant
Date Posted: 25/Mar/2009 at 9:53pm
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The management says that a 41% stake is EPS accreative now how can they consolidate without a 51% holding unless it is a JV? ------------- 'The Thoughtful Investor: A Journey to Financial Freedom Through Stock Market Investing' - A Book on Equity Investing especially for Indian Investors. Book your copy now: www.thethoughtfulinvestor.in |
Posted By: chimak10
Date Posted: 25/Mar/2009 at 8:44am
| one of my query did CG initate buyback to offset the cry over this new venture......???????? |
Posted By: basant
Date Posted: 25/Mar/2009 at 9:13am
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Absolutely. They tried to put off the burn by pouring some cold water! ------------- 'The Thoughtful Investor: A Journey to Financial Freedom Through Stock Market Investing' - A Book on Equity Investing especially for Indian Investors. Book your copy now: www.thethoughtfulinvestor.in |
Posted By: wiseowl
Date Posted: 26/Mar/2009 at 3:04pm
Since they make electrical equipments, power generation seems to be an allied field. So it appears that they moved into a not-so-unrelated diversification this time . APIL is up and running (although with its own expansion programme), so the payback time may not be as long as that for a greenfield venture. However, the company could have first sorted out the huge debt of its subsidiaries before moving to the APIL turf. ------------- You alone are responsible for your actions. |
Posted By: smartcat
Date Posted: 26/Mar/2009 at 4:31pm
haha.. looks like many investors ticked the second option and "left it".
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Posted By: Vivek Sukhani
Date Posted: 26/Mar/2009 at 4:40pm
....and lost an opportunity to make a10 p.c+ in a day......hehehe ------------- Jai Guru!!! |
Posted By: kannanravi1
Date Posted: 09/Apr/2009 at 2:26am
This is true...power generation is an allied field and plus the acquisition is not at a premium, but at book value. So I don't think we should suspect that the management is trying to pull a 'satyam' here. Having said that, I think there are risks of a history of diworsification here that should be kept in mind. Also, thier US and Euro operations could be hit in the slowdown. At 12-13 times PE and 5 times book, I don't think the risks have been adequately priced in (even considering the buyback). Overall though, a strong company with excellent products and respected brand - I would personally though wait for the prices to come down further. ------------- kannan |
Posted By: Hitesh Shah
Date Posted: 20/May/2009 at 5:17pm
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Crompton Greaves, manufacturer of transformers (among other things) whose demise was predicted by many: Year's low: 99.40 CMP: 251.35 A modest two-bagger (at least). ------------- |
Posted By: basant
Date Posted: 20/May/2009 at 5:41pm
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Its fashionable to pick holes isn't it? How many predicated the demise of Pantaloon Retail?
Its better to get direct rather then go indirect with statements like "many"!
------------- 'The Thoughtful Investor: A Journey to Financial Freedom Through Stock Market Investing' - A Book on Equity Investing especially for Indian Investors. Book your copy now: www.thethoughtfulinvestor.in |
Posted By: Hitesh Shah
Date Posted: 20/May/2009 at 5:53pm
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I read the thread just before posting. There were many posts negative. I, Vivek, & Praveen were a bit postive.
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