Thursday, October 20, 2011

A Case of unfriendly management....Crompton Greaves......

Angry shareholders force Crompton to sell its aircraft

Moneycontrol Bureau
The aircraft which
Crompton Greaves bought for Rs 270 crore in FY11 will be sold by December learns CNBC-TV18 from sources. The company had upset its institutional investors by acquiring the aircraft at a time when its margins were under pressure.
Since then the company has seen its stock nosedive 41% underperforming the Sensex by 29% in the last two quarters. Yesterday, the company reported a sharp decline of 45% in its net profit at Rs 116.60 crore for the July-Sept quarter due to high interest cost and margin pressures which continue to dent the company's profitability even in the second quarter.
It may be recalled that the management of Crompton Greaves faced some tough question from investors in the company’s annual general meeting in July about its purchase of aircraft. Investors were miffed that the company bought an aircraft worth 270 crore when its net profit in FY 2010-11 was about 70 crore. Some company officials described the purchase as 'investment' which did not augur well with investors.
However, analysts believe the purchase of aircraft by the company remains an overhang for the stock. Crompton’s capital expenditure more than tripled in FY11 to Rs 440 crore, partly on account of Rs 270 crore ‘investment’ in an aircraft. This, coupled with higher working capital, resulted in return on equity falling from 41% in FY10 to 34% in FY11.

My Comments:
I have been writing since long that there is no good management or bad management.It all depends how the Co is doing and market likes Cos which is turning around.
While giving examples for bad management and still market gave thumbs up I have given example of Crompton Greaves that Thapars were never investor friendly and still as the Co turn arounf market gave a high valuation.
The above news vindicates my belief that Thapars were never investor friendly .They bought Rs 270 cr Aircraft in 2011 even though they were knowing that profit margin are going to get squezed.
Institutional investor has forced them to sell that Aircraft.
Birla's are never good paymaster.They never gives Bonus.Very conservative management.Never makes shareholder happy but still one can see that Grasim is quoting at Rs 2320.This stock has almost not at all corrected with the large cap.
What is there in Grasim?Sales is Rs 4645 and Mcap is 21275.That means Mcap is almost 5 times the sales and hence Grasim is overvalued but still with conservative management still Grasim is showing great strength.
I can give scores of examples where market gave huge discounting to bad management.
I do not believe in Bad/Good Management.Co which starts making profit is good.Co which is making a turnaround is good.Go ahead and buy them and sit on it and wait for your turn to come.
When I write wait for your turn to come I mean let market take note of it and when I say let market take note of it, I mean let operators start take interest in it .........


  1. the net profit on standalone basis itself was 694 cr as against 70 cr mentioned in the post .

  2. ABC, u r talking of last whole year NP which was 694 cr.But this year the NP has plumetted in June qr and also in Sep qr....please verify it and if I m wrong do give me the links......

  3. your quarterly figures are right sir ... i mean the net profit for fy10-11 u mentioned in the post, i am pasting the excerpt from your article ..i guess its a typo ..

    "Investors were miffed that the company bought an aircraft worth 270 crore when its net profit in FY 2010-11 was about 70 crore."

    here is the link for standalone results:

  4. Hi ABC,
    I took that post from .....the comments written under that post is mine.....

  5. Sir,

    Once you very strongly recommended Digjam, a Birla co. So are you still holding that recommendation.

    A Pandey

  6. Ashutosh,
    I am still holding on with my recomendation on Digjam.