Crompton Greaves poised for re-rating of the stock

The Honorable High Court of Judicature at Bombay has on November 20, 2015 approved the Scheme of Demerger of the Consumer Products Business Unit of the Crompton Greaves Limited (CG) into CG's wholly owned subsidiary Crompton Greaves Consumer Electricals Limited (CGCEL). This Scheme was approved by the Shareholders of the CG at the Court Convened Meeting held on August 13, 2015.

Upon the effective implementation of the Scheme, CGCEL will issue and allot to the shareholders of CG as on the record date to be fixed, one (1) fully paid up equity share of Rs. 2 each for every one (1) equity share of Rs. 2/- each held in CG.

The Scheme shall be effective from the Appointed Date i.e. October 01, 2015, upon filing of the Certified Copy of the Order of the Hon'ble High Court, sanctioning the Scheme, with the Registrar of Companies. Upon receipt of the Certified Copy of the Order, the Company shall notify the Stock Exchanges and also upload the said order on the website of the Company.

Macquarie has an outperform rating with a target price of Rs 249 per share. As the Bombay High Court has approved demerger of consumer products business unit of Crompton, Macquarie expects listing of the unit in Q4FY16. It thinks that the consumer business will get re-rated post listing as its strength is comparable to the best in industry in terms of brand and distribution franchise. According to the brokerage, Crompton Greaves has under-utilised brand as it remains restricted to a few segments -fans, lighting & pumps. It expects Crompton to increase its footprint in other segments like appliances and potentially into the switchgear market. "Apart from the demerger of the consumer business, Crompton has done a series of divestments in the last few months, including a land sale at Kanjurmarg at Rs 490 crore, Canada Power system sale at an EV of Canadian dollar 20 million, exit from the distribution franchise in Maharashtra, sale of stake in CG Lucy switchgear," it says in a note. Macquaire also says that if Crompton is able to sell International Power, the debt would be reduced to zero.