Prabhudas Lilladher has recommended a reduce rating on Crompton Greaves with a target price of Rs 115 in its March 25, 2009 research report.
“Crompton Greaves (CRG) board has given approval to buy a stake of 41% for Rs 2.3 billion at book value in Avantha Power and Infrastructure (APIL), a promoter group company. These funds are to be utilized for the Korba 1x600mw power plant for which a debt of Rs 21 billion has already been underwritten, 80% of land acquisition has been completed, water allocation has been done and coal linkage are in place. CRG board has approved a buy-back of shares for Rs 2.2 billion upto a price of Rs 170 per share. Keeping in mind that the APIL stake will be paid in cash and the current cash balance is just about Rs 3.0 billion, CRG will have to utilize internal cash generation over the next 9-12 months if it wants to complete the buy-back.”
“However, in the near term this diversification would have a negative impact as the future cash flow commitments to this segment are not known. Also, to maintain its stake in the venture, CRG will have to commit larger sums of money, going ahead. Our Reduce rating stays, with a target price of Rs 115,” says Prabhudas Lilladher’s research report.
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