Crompton to leverage R&D to combat challenges

Crompton Greaves (CG), a part of the Avantha Group headed by Gautam Thapar, is working on remodelling itself to address factors which hit the company in the previous financial year.

In a letter to shareholders last week, Group Chairman Gautam Thapar said, “The company requires a strategic change of gear and must leverage on research and development (R&D) more than ever before.”

It may be noted that CG shareholders lost half their wealth during fiscal 2012 as shares plunged five times below the benchmark indices primarily due to factors like intensifying competition from Chinese and South Korean firms, besides the global economic slowdown. “What Crompton Greaves witnessed in fiscal 2012 was a brake.

Your company has to rapidly leverage its global synergies. It has to be ‘One CG. Fast CG. Lean CG’..” Thapar wrote in his letter.

“All this requires us to completely eschew notions of geographic and plant-centric silos. The DNA of selling must be one where the customers comes first; not where the factory is. ‘Fast CG’ requires your company to react very quickly to the business opportunities,” he added.

Gone are the days when power equipment manufacturers enjoyed higher prices and margins which were the norm for half a decade leading up to 2009-10, Thapar said, adding, “Companies will have to be more productive and competitive; and focus on bundling equipment as a part of selling end-to-end solutions. Your company is no exception to this reality.”

In fiscal 2012, Crompton’s net profit nosedived to Rs 505 crore, down 27 per cent compared with Rs 694 crore in the corresponding previous year. After a decade of growing revenues, there was a sudden break in momentum. During the first quarter of the current fiscal, CG’s net profit as well as net profit margins continued to decline against the same period last year.

Facing strong headwinds in the market, the company’s shares were hit badly. In fiscal 2012, while the Sensex and Nifty lost 10 per cent, stocks of the power equipment maker lost half their value, free-falling from Rs 272.95 to Rs 138.15.

Further, the CG counter tanked to hit a 52-week low of Rs 102.40 on BSE in May. It has recovered partially since then and closed on Wednesday at Rs 118.70, though market experts have their reservations on the stock.

They also aver that both Indian and global transmission and distribution markets are facing headwinds, while the economic weakness in Europe and strife in West Asia have made things worse.

Though fiscal 2012 was a difficult year for the company, Thapar assured shareholders that "the remodelling has begun. Bear with CG, because the platform for creating a global enterprise has commenced,” he said.