CG Power and Industrial Solutions Ltd. (CGPOWER) is a major player in the electric equipment industry in India. Let’s take an in-depth look at the company’s prospects using both technical and fundamental analysis techniques.
Key Takeaways
- CG Power and Industrial Solutions Ltd. (CGPOWER) is a leading player in the Indian electric equipment industry, with a diverse portfolio spanning railways, transformers, switchgears, drives, and automation segments.
- The company has shown remarkable improvement in financial performance over the past few years, with strong revenue growth, profitability, and a healthy balance sheet.
- Technical analysis indicates a strong uptrend in the stock price, with key support levels at Rs. 450-460 and resistance at the all-time high of Rs. 550.
- Fundamental analysis reveals robust growth prospects driven by government initiatives in the power sector, strategic overseas acquisitions, and a strong R&D focus.
- Key risks include slowdown in infrastructure spending, competition from cheaper imports, commodity price volatility, and any corporate governance issues.
CG Power and Industrial Solutions: Background
CG Power and Industrial Solutions Ltd., formerly known as Crompton Greaves Limited, was founded in 1937 as a subsidiary of the UK-based Crompton Parkinson Limited. The company was acquired by the Thapar Group in 1947 and went public in 1960. Over the years, CG Power expanded its product portfolio through technology collaborations and acquisitions, emerging as a leading player in the Indian electrical engineering industry.
In 2020, the Murugappa Group’s Tube Investments of India Limited (TI) acquired a controlling 53% stake in CG Power, following financial irregularities and governance issues under the previous management. Since then, the company has undergone a major turnaround, with a new board, settlement of legacy issues, and a renewed focus on operational efficiency and growth.
Today, CG Power derives about 90% of its revenue from domestic operations, with a wide range of products finding applications in industrial, railway, and power sectors. The company has also re-entered the fast-moving electrical goods (FMEG) segment and is investing in new product development, especially in the EV motor space.
CG Power and Industrial Solutions Ltd. (CGPOWER) is a major player in the electric equipment industry in India. Let’s take an in-depth look at the company’s prospects using both technical and fundamental analysis techniques.
Technical Analysis
Looking at the price chart of CGPOWER over the past year, the stock has been in a strong uptrend, rising from around Rs. 100 levels in early 2022 to its current price of Rs. 507 – a staggering 5x return. The stock has consistently made higher highs and higher lows, a sign of a healthy uptrend.
Key technical levels to watch on the upside are Rs. 550 which is the stock’s all-time high, and on the downside support exists around Rs. 450-460 levels where it has taken support multiple times in the recent past.
Momentum indicators like the RSI are in overbought territory, so some consolidation or correction is possible in the near-term. However, the overall trend remains bullish as long as it holds above the crucial Rs. 450 support.
Fundamental Analysis
On the fundamental front, CGPOWER has shown remarkable improvement across all key financial metrics over the past few years:
| Metric | 3-Year CAGR |
|---|---|
| Revenue | 25% |
| EBITDA | 6% |
| Net Profit | 5.5% |
| EPS | 5.5% |
The company’s profitability ratios are also very healthy:
| Ratio | Value |
|---|---|
| ROE | 75.9% |
| ROA | 35.1% |
| ROCE | 32.7% |
| Net Profit Margin | 20.9% |
This stellar financial performance is a result of CGPOWER’s strong market position, wide product portfolio, operational efficiency and strategic overseas acquisitions over the years.
From a valuation perspective, the stock looks expensive trading at a P/E of 44x and P/B of 33x. However, this premium valuation seems justified given the company’s robust growth prospects, strong balance sheet (debt-to-equity of just 0.003), and high profitability.
The Piotroski F-Score, which is a measure of the company’s financial strength, is also very high at 7, indicating low leverage, increasing liquidity, and improving operating efficiency.
Institutional investors seem to concur, with marquee names like HDFC Mutual Fund, Aditya Birla Sun Life, and Nippon India owning stakes in the company.
Growth Drivers
CGPOWER is well-positioned to capitalize on the immense growth opportunity in India’s power sector. The government’s focus on renewable energy, smart cities, railway electrification, and grid modernization will drive huge demand for CGPOWER’s products like transformers, switchgears, automation systems, etc.
The company is also a key beneficiary of the PLI scheme for white goods which will boost demand for its motors and pumps business. Overseas, its strategic acquisitions give it a foothold in high-growth markets of Europe and Americas.
CGPOWER’s strong R&D capabilities (400+ patents) and wide service network (8000+ touch points) provide competitive advantages that should help it gain market share.
Risks
Key risks to monitor are:
- Slowdown in capex and infra spending by government and private sector
- Increasing competition, especially from cheaper Chinese imports
- Volatility in commodity prices which may pressure margins
- Delay in receivables from financially-stressed power discoms
- Any corporate governance issues as seen in the past
Conclusion
In summary, CGPOWER’s stock has seen a spectacular rally over the past year and the company’s fundamentals also look solid with industry-leading growth and profitability. While valuations are rich, the strong growth visibility justifies the premium.
Investors can consider the stock on dips and corrections for the long-term, keeping in mind the key risks. Technically, Rs. 450 remains a crucial support level and a break below that would negate the bullish thesis.
With the right strategic focus and execution, CG Power and Industrial Solutions has the potential to become a global leader in the electric equipment industry and create substantial wealth for shareholders.
