Crompton Greaves gain 8% on asset sale abroad

Shares of Crompton Greaves gained 8% after the company announced that it would sell its overseas transmission and distribution business at an enterprise value of €115 million to become a zero net-debt firm. This stock may remain firm for a few days with chairman Gautam Thapar trying to assuage analysts concerns with a profit guidance.

Thapar said the power business (that would be left post the proposed deal) would report profit of Rs 325 crore on a revenue of Rs 6,500 crore in FY17. At present, the stock is trading at Rs 151. The consumers business would be demerged with effect from March 16. Analysts estimate a value of Rs 120 for the de-merged business and the balance Rs 31 for the power business.

Based on Wednesday’s guidance, analysts estimate an EPS of Rs 5.19 for FY17 for the power business. Compared with its peer Bajaj Electricals (trading at a PE multiple of 11x for FY17), the fair value of the company’s power business would be `57 against the implied value of `31. But the market will also consider probable impairment that may depress fair value.