Posts Tagged ‘Crompton Greaves


Short Strangle in Crompton Greaves

Crompton Greaves does it again in Q2 2011. Net Profits were down 46% YoY to Rs. 116.6 crore, Top line grew 13% YoY to Rs 2705.53 crore. High depreciation and higher tax rate pulled bottomline numbers down, which were below street expectations. Order inflow growth remains muted, which is the key concern across  the capital goods sector. Even L&T showed 21% YoY drop in order inflows in Q2 results yesterday.

After Q1 FY12 results also I had written one post on the company poor performance and corporate governance, Before announcing Q2 results, Crompton stock had formed base around Rs. 140 and had moved to 165 odd levels. Management  bought some shares around that level and the company also decided to sell its Rs 270 crore aircraft after large investor protests. Crompton stock closed 12.33% down after its results. I have formed short strangle in Crompton Greaves, sold 110 put and 170 call. Apart from this strangle, I have also sold OTM calls. It will be quite a while before company stock will stabilize. As per new estimates, Crompton will report Rs 9 EPS for FY12. At 140, stock trades at 15.5x its FY12 per share earnings. I don’t think you will buy Crompton at 15x in this market. I mean there are better stories in  the market, trading at lower multiples than Crompton at 15 PE. Although I have sold Maruti OTM calls, but automaker is trading at lower multiples than Crompton and given a choice I would buy Maruti than Crompton.


Crompton Greaves : New Opportunity

Finally after some time, Crompton Greaves presented me with an opportunity. Q1 FY11 poor results, selling of shares by outgoing MD and curious case of expensive aircraft purchase, all led to sharp fall in company shares. In 2 days, crompton shares have fallen close to 30 percent leading to wealth destruction of 4200 crore.

I think the problem with the stock was of over ownership, primarily institutions. Crompton greaves is in a lot of MF and FII portfolio. Poor results in over owned companies usually trigger sharp reaction. Infosys has seen milder version of this kind of reaction for the last 2 quarters. In Q4 FY10, when crompton greaves announced poor results, brokerage results said it was one-off event and company would bounce back. Everything was beautifully summed up on moneycontrol ( I have started selling OTM calls of crompton greaves. I don’t think company shares will rise 30-40% from these levels in the next one month. Lot of shorts have been created in last 2 days, so there might be bouts of short covering.

July 2018
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