investors eye

stock update

Greaves Cotton

Reco: Buy

Stock Update

Upgraded to Buy with a PT of Rs160

Key points

Company details
Price target:

Rs160

Market cap:

Rs3,192 cr

52 week high/low:

Rs159/117

NSE volume:
(no. of shares)

CMP: Rs131

1.3 lakh

BSE code:

501455

NSE code:

GREAVESCOT

Sharekhan code:

GREAVESCOT

Free float:
(no. of shares)

11.8 cr

Shareholding pattern

Price correction an opportunity for investors to enter the stock: The stock
of Greaves Cotton has witnessed a 12% correction since Q1FY2016 results. The
fall has been in line with the broad market correction. We had maintained a
Hold rating in our note dated July 31, 2015, as the stock was trading at a rich
valuation of 17.2x its FY2017E earnings. Post-correction, the stock is now trading
at a reasonable valuation with an upside scope for investors. Hence, we upgrade
the stock the Buy.
Strong margin performance in Q1FY2016; concerns on growth: In FY2015,
the management took the strategic decision to exit loss-making ventures,
especially the struggling construction equipment division, which reported a
loss of Rs35 crore in FY2015. Additionally, there was focus on value engineering
and overhead cost control to improve profitability. These efforts yielded results
with the company reporting a strong margin performance in Q1FY2016 at 16.4%
and beat estimates. We expect the company to maintain margins at current
levels; however, the revenue growth remains an area of concern. We expect a
recovery for the engine division in H2FY2016 as business with new customers
and product offerings ramp-up.
Upgrade to Buy with an unchanged price target of Rs160: Despite the strong
operational performance in Q1FY2016, the stock has corrected due to negative
market cues. The operating profit margins are expected to rise back to the 16%
mark vis--vis 12% in FY2015. The company has a strong balance sheet with
cash and cash equivalents of Rs400 crore. The correction offers investors an
opportunity to enter the stock. Hence, we upgrade the stock to Buy with an
unchanged price target of Rs160.

Price chart

Valuations

Price performance
(%)

1m

3m

-6.8

4.0

-0.5

5.3

Relative -2.7
to Sensex

8.0

6.2

7.4

Absolute

6m 12m

Particulars

FY2013

FY2014

FY2015

FY2016E

FY2017E

Net sales (Rs cr)

Growth (%)
EBITDA (Rs cr)
OPM (%)
PAT (Rs cr)
Growth (%)
FD EPS (Rs)
P/E (x)
P/B (x)
EV/EBITDA (x)
RoE (%)
RoCE (%)

1,875.4
6.9
244.4
13.0
155.6
9.4
6.4
20.5
4.3
12.6
22.4
29.4

1,721.5
-8.2
196.1
11.4
121.1
-22.2
5.0
26.4
3.9
15.3
15.5
21.5

1,692.2
-1.7
203.3
12.0
127.7
5.4
5.2
25.0
3.9
14.0
15.6
20.7

1,733.0
2.4
278.1
16.1
187.5
46.9
7.7
17.0
3.5
9.9
21.5
28.9

1,869.9
7.9
302.9
16.2
210.1
12.0
8.6
15.2
3.1
8.8
21.5
29.0

Sharekhan

September 23, 2015

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investors eye

stock update

Quarterly margin trend (%) strong performance in Q1FY2016

Quarterly net sales trend

Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a position in the companies mentioned in the article.

Sharekhan

September 23, 2015

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December 26, 2014

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