CG Power and Industrial Solutions: A Case Study of Resilience and Growth
Introduction
CG Power and Industrial Solutions Ltd. (CG Power) is a leading player in the global engineering industry with a significant presence in India. Formerly known as Crompton Greaves, the company has built a legacy of over eight decades in power systems, industrial solutions, and automation technologies. The company offers a wide range of products, including transformers, motors, switchgear, and automation solutions, serving sectors such as utilities, industrial, and renewables. However, CG Power has experienced a turbulent journey over the past few years, marked by corporate governance issues, financial stress, and eventual revival. This case study will provide an in-depth analysis of the company’s history, business model, challenges, and recent turnaround efforts that have enabled it to regain its market position.
Company History and Evolution
Founded in 1937 as Crompton Parkinson Works, CG Power and Industrial Solutions Ltd. has a rich heritage in electrical engineering. The company was initially set up in India as part of a collaboration between British firms Crompton & Company and Parkinson and Company to manufacture electric motors and related equipment. Over the years, Crompton Greaves expanded its product range, entering sectors like power transmission and distribution, industrial automation, and consumer electrical goods.
In 2016, the consumer electrical business was demerged into Crompton Greaves Consumer Electricals Ltd., leaving CG Power to focus solely on its B2B business, i.e., power systems and industrial solutions. The demerger was followed by a period of operational challenges and a subsequent corporate governance crisis in 2019, leading to financial distress.
Business Model
CG Power’s business model revolves around two key segments:
- Power Systems
- Transformers: Power and distribution transformers up to 800 kV.
- Switchgear: Medium and high-voltage switchgear.
- Automation: Power management solutions for utilities and industries.
- Industrial Solutions
- Motors: Low-voltage and high-voltage motors for various industrial applications.
- Drives and Automation: Industrial drives, motors, and control systems for sectors such as steel, oil and gas, and cement.
The company has a strong presence in the power generation, transmission, and distribution markets. It also caters to industrial customers across verticals such as manufacturing, infrastructure, and renewable energy.
CG Power derives revenue from product sales and long-term contracts, including operations and maintenance (O&M) services, consultancy, and installation.
Challenges Faced by CG Power
1. Corporate Governance Issues (2019)
In 2019, CG Power was rocked by a major corporate governance scandal when the company disclosed that several unauthorized transactions were carried out, leading to a financial misstatement. This discovery led to the removal of the then-chairman and managing director, Gautam Thapar. The fraudulent activities were believed to have inflated assets and understated liabilities by approximately ₹1,500 crores. The stock price plummeted, and the company faced a liquidity crunch that pushed it to the brink of insolvency.
2. Financial Strain and Debt Burden
Following the governance crisis, CG Power found itself struggling to manage its debt obligations. The company had a high debt-to-equity ratio, with total borrowings exceeding ₹2,000 crores at the time. The company defaulted on loans and faced multiple legal challenges from creditors, which threatened its survival.
3. Operational Challenges
Apart from financial and governance issues, CG Power also struggled with operational inefficiencies and a slow recovery in demand in key sectors such as power and industrial automation. Competition from international and domestic players further added to the company’s woes.
Turnaround Strategy
In 2020, Murugappa Group’s Tube Investments of India (TII) acquired a controlling stake in CG Power, injecting much-needed capital and credibility. The acquisition marked a turning point for the company, with TII embarking on a series of strategic initiatives aimed at reviving CG Power.
Key Components of the Turnaround Plan:
- Debt Restructuring
TII successfully renegotiated terms with CG Power’s creditors, reducing the company’s debt burden and improving cash flow management. By the end of FY2022, the company had significantly reduced its debt, easing the financial stress. - Leadership Overhaul
Post-acquisition, TII installed a new leadership team, bringing in experienced executives with a focus on operational efficiency, governance, and strategic growth. The focus was on rebuilding investor confidence and improving corporate governance practices. - Operational Efficiency and Cost Reduction
A series of cost-reduction measures were implemented to improve operational margins. This included shutting down non-core operations, consolidating manufacturing facilities, and streamlining supply chain management. - Focus on Core Segments
Under the new management, CG Power narrowed its focus to its core segments—power systems and industrial solutions. By optimizing its product portfolio, the company was able to concentrate on high-margin products and exit non-performing businesses. - Digital Transformation and Innovation
The company invested in digital transformation, automating production processes, and adopting Industry 4.0 practices. This led to improved production efficiency and better customer service through real-time monitoring of systems.
Recent Financial Performance
Since its acquisition by the Murugappa Group, CG Power has seen a remarkable improvement in its financial performance.
| Year | Revenue (₹ Crores) | EBITDA Margin | Net Profit (₹ Crores) | Debt (₹ Crores) |
|---|---|---|---|---|
| FY2020 | 3,600 | 5.2% | -1,200 | 2,100 |
| FY2021 | 4,200 | 9.5% | 200 | 1,500 |
| FY2022 | 4,800 | 12.8% | 450 | 900 |
| FY2023 | 5,300 | 14.5% | 600 | 600 |
In FY2023, CG Power reported revenue of ₹5,300 crores, a 10% growth compared to the previous year. The company’s EBITDA margin improved to 14.5%, driven by cost-cutting measures and a stronger focus on high-margin segments. CG Power has also turned profitable, reporting a net profit of ₹600 crores in FY2023, compared to a net loss in FY2020.
Debt reduction has been one of the company’s key achievements, with the total debt decreasing from ₹2,100 crores in FY2020 to ₹600 crores in FY2023. This improved balance sheet has enabled CG Power to invest in growth areas, including renewable energy and smart grid solutions.
Strategic Growth Opportunities
CG Power is well-positioned to capitalize on several emerging trends in the global energy and industrial sectors:
- Renewable Energy
With the global shift towards cleaner energy sources, there is growing demand for energy-efficient transformers, switchgear, and automation solutions. CG Power has been investing in R&D to develop renewable energy solutions such as solar inverters and grid integration technologies, which will drive future growth. - Smart Grids and Electrification
The growing demand for smart grids and electrification in India and globally presents a significant opportunity for CG Power. The company has been developing IoT-enabled automation systems that allow utilities to manage energy distribution more efficiently. - Industrial Automation
The rise of Industry 4.0 and the increasing demand for automation solutions across industries are key drivers for CG Power’s industrial solutions business. The company has been expanding its portfolio of motors and drives for the manufacturing sector, helping companies improve operational efficiency.
Conclusion
CG Power and Industrial Solutions Ltd. is a textbook example of how strategic intervention, leadership change, and a focus on core strengths can drive a turnaround. After facing severe challenges in 2019, including a corporate governance scandal and financial stress, CG Power’s acquisition by Murugappa Group’s TII has been a game-changer. Today, the company is back on a growth trajectory, with a stronger balance sheet, improved profitability, and a clear focus on emerging opportunities in renewable energy, industrial automation, and smart grid technologies.
As the company continues to expand its product offerings and leverage digital transformation, CG Power is poised to remain a leader in the power systems and industrial solutions markets, both in India and globally.
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