Arihant Capital has given Accumulate recommendation for Greaves Cotton with a target price of Rs. 148 in its research report issued on Oct 27, 2021
Arihant Capital’s research report on Greaves Cotton
Greaves Cotton Limited (GCL) has reported Mixed performance during Q2 FY22 with PAT de-growth, margin contraction but revenue above estimate. •Net profit for the quarter of INR 83.4 mn in Q2FY22 against our estimate of INR 152 mn. •Standalone revenue from operations grew by 32.4% QoQ/-1.5% YoY stood at INR 2,840 mn in Q2FY22 against our estimate of INR 2,450 mn led by growth in the Engine, mobility and other segment. •Gross margin of the company decreased by 184 bps QoQ at 28%. Despite the decrease of the gross margin, the company EBITDA margin expanded by 438bps QoQ to 1.6% Q2FY22 (it came in positive after the loss -2.8% in Q1 FY22) against our estimate of 12.4% in Q2FY22 due to higher other expenses and employee cost. •Higher other income at 330.5% YoY/73.2% QoQ at INR 76 mn has supported the earnings of the company. •EPS at INR 0.36 in Q2FY22 against -0.28 / -0.78 in Q1FY22 / Q2FY21.
Outlook
We value the standalone business to 10x to its FY24E EBITDA of INR 2330 Mn and arrive at a fair value of INR ~122/share With Ampere’s stake 100% in greave cotton. Ampere’s has been valued at 1.5x FY24E sales. Our SOTP valuation yields a fair value of INR 148 per share. We maintain an Accumulate rating on the stock.