Crompton Greaves Shares Tank 74% Ex-Demerger

Crompton Greaves shares crashed as much as 74 per cent to Rs 40.30 on Tuesday following the demerger of its consumer business. From Tuesday, Crompton Greaves shares will reflect only its power business, which includes its power transmission and associated equipment business. 

Crompton Greaves shares had closed at 155.30 on Monday. 

The consumer business is expected to be listed separately in April.  Crompton Greaves had in February 2015 announced the decision to fully demerge its consumer products business. The company believes that the demerger will create better growth opportunities for its two large but significantly different businesses - power transmission and consumer products business such as fans, pumps and heaters.

Analysts estimate the value of its power business at Rs 40-50/share. The power business has an India orderbook of about Rs 4,000 crore. The Street is estimating FY18 earnings per share of Crompton Greaves at Rs 4.1 which means that stock is trading at around 10 times its earnings.

Analysts say that at 10 times earnings multiple, the stock is trading at an attractive valuation. The order inflows in the transmission and distribution businesses are expected to pick up in next three years, analysts said. 

Ahead of the demerger, Crompton Greaves shares had seen a big rally in the past one month, surging nearly 30 per cent.  The company had announced sale of its transmission and distribution business outside India, which was seen as a drag on its bottomline.  Analysts say that the sale would help Crompton Greaves pare its debt and thus reduce the interest load burden. 

Domestic brokerage Religare has a 'buy' rating on Crompton Greaves shares, with a March 2017 target price Rs 55.  "The demerged power & industrial business will be debt-free post conclusion of the recently announced sale of international businesses. This along with Crompton Greaves renewed focus on the business-to-business segment would lead to a meaningful improvement in its return ratios from here on," it said.  Religare values Crompton's consumer business at Rs 115/share.

Crompton Greaves shares ended 71 per cent lower at Rs 44. As compared to the stock's opening price of Rs 53, it settled nearly 17 per cent lower. In comparison, Sensex fell 1 per cent.