Stock in Action - CG Power

Why is CG Power's stock buzzing Today?

CG Power and Industrial Solutions Ltd. has attracted attention due to its promising growth outlook. International brokerage UBS has notably increased the target price by 35%, reflecting strong investor confidence. The company's strategic capital allocation and solid demand drivers are key factors bolstering this positive sentiment. Furthermore, CG Power's leading profitability and strategic fund allocation are projected to drive substantial growth in the upcoming quarters, positioning it as a compelling investment opportunity

About Company

CG Power & Industrial Solutions is a global enterprise offering comprehensive solutions for efficient and sustainable electrical energy management. It operates in two main business segments: Power Systems and Industrial Systems

Transformations in Investor Composition

Over the past few years, CG Power and Industrial Solutions Ltd. has experienced notable shifts in its investor base, reflecting a dynamic investment environment and increasing confidence in the company's potential.

From June 2021 to March 2024, promoter holdings rose from 53.25% to 58.11%, indicating strong confidence from the company's promoters. Foreign Institutional Investors (FIIs) also increased their stakes, with holdings climbing from 10.70% to 15.18% during the same period, highlighting faith in CG Power's prospects.

Domestic Institutional Investors (DIIs) have similarly shown greater interest, with their holdings rising from 6.42% to 10.09%, demonstrating robust domestic institutional support. 

Moreover, the number of shareholders increased from 172,733 to 258,587 between June 2021 to March 2024, reflecting broader market interest and confidence in CG Power's growth trajectory.

Overall, the company's ability to attract substantial institutional investment while maintaining strong promoter confidence underscores its solid performance and promising future in the power and industrial sectors.

Highlights and Future Prospects for CG Power

Q4 Results Highlights:

Revenue Growth: 
CG Power reported a standalone profit after tax of Rs 240.59 crore for the January-March 2024 quarter, which is a slight increase from Rs 240.23 crore in the same period last year. On a quarterly basis, it increased by 11.44%. 

Annual Performance: 
For FY24, the company achieved a 28% increase in standalone profit after tax, reaching Rs 1,004 crore compared to Rs 785 crore in FY23.

Segment Performance: 
Power Systems contributed 29% to the revenue, while Industrial Systems accounted for 71%.
Management Outlook:

Capital Allocation: 
The management emphasizes prudent capital allocation, which is expected to drive bottom-line growth in the coming quarters.

Capacity Expansion: 
The company plans to debottleneck and modernize existing facilities with an investment of INR 400 crore in FY 24-25. Significant expansion is planned at Ahmednagar, Goa, Bhopal, and Malanpur plants.

Market Leadership: 
CG Power continues to dominate the Industrial Motors business and aims to further strengthen its market position.

Export Focus: 
The company plans to increase export contribution from 5% to 20% over the next 4-5 years, targeting markets in Africa, Europe, and Southeast Asia.

Strategic Projects: 
CG Power is establishing a semiconductor ATMP unit in Sanand, Gujarat, in collaboration with Renesas Electronics Corporation and Stars Microelectronics. This project, with an investment of INR 7,600 crore, will enhance the company's capabilities in the semiconductor sector, producing 15 million chips per day for various applications.

Financial Strategy: 
The Board of Directors approved a scheme for capital reorganization, transferring INR 400 crore from General Reserves to Retained Earnings, pending requisite approvals. Additionally, the company redeemed 20,000 Non-Convertible Debentures, totaling INR 200 crore in FY23.

CG Power and Industrial Solutions Ltd. demonstrated strong financial performance in Q4 and FY24, driven by strategic capital allocation, capacity expansion, and a focus on market leadership. The company's future outlook remains positive, with significant growth potential in both domestic and international markets

Peer Comparison

Pros:
●    The company is almost debt-free.
●    The company has delivered good profit growth of 34.0% CAGR over the last 5 years
●    The company has a good return on equity (ROE) track record: 3 Years ROE 58.4%
 

Cons:
●    Stock is trading at 33.3 times its book value
●    Earnings include an other income of Rs.684 Cr.

Conclusion

CG Power and Industrial Solutions Ltd. is gaining significant attention today because UBS has increased its target price by 35%, signaling strong investor confidence. The company's strategic use of capital, strong demand drivers, and impressive profitability indicate substantial growth potential in the coming quarters, making it a highly attractive investment opportunity.