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Sowmya Sundar

INVESTORS with high-risk appetite can consider fresh exposures in Crompton Greaves. The stock was re-rated on the back of improving fundamentals and has run up sharply in the past few months.

Debt reduction, improving cash earnings and cash flow, lower accumulated losses and a much better consolidated picture indicate that the turnaround is indeed on. The business environment too is conducive.

On the flip side, the digital segment continues to be a drag on the profitability. The flat turnover growth in June 2003 quarter is not very comforting. The clean-up act: In the last couple of years, Crompton Greaves sold off its non-core businesses to pay off its debts. Now, debt, as a proportion of shareholder funds, stands reduced at two times as against 2.25 times in the previous year. The subsequent reduction in interest costs improved the bottomline and cash flows. The improved profits and cash flow have reduced accumulated losses, which now stand at Rs 13 crore against Rs 38 crore the previous year. Crompton Greaves, which had earlier lost money in subsidiaries and associate companies, is now earning higher income from its investments.

To prune down its operations, the company closed down three other divisions — the capacitors division, informatics division and industrial electronics division. All these initiatives could strengthen the company in future.

Conducive business environment: The conducive external environment could accelerate the company's clean-up act. Among the four businesses, at least three have scope for growth.

The consumer products business that makes and sells lights, fans and pumps have shown a decent growth over the last few quarters. The housing boom in the last couple of years has contributed to higher sales of these products. As long as there is demand for housing, Crompton Greaves can sustain growth in this segment.

With the State electricity boards cleaning up the distribution mess, demand for switchgears and transformers could increase. The growth in the industrial manufacturing segment could sustain demand for products such as electric motors and alternators used in industrial applications. On the flip side, Crompton Greaves operates in a competitive environment where it competes with the unorganised sector. But the interest reduction and the topline growth should lead to better results. At the current market price, one can take fresh exposures in the stock.

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