Greaves Cotton - Q1FY14 Results - Kotak

GCL missed our estimates on all counts, albeit by a minor extent. Revenue were flat due to weak 3W volumes as well as moderation in demand for Magic Iris/Ace Zip. Company managed to preserve margins through stringent cost management. Infrastructure equipment segment reported erosion in profitability.

- In the near-term, weak economic activity is leading to muted demand for the company's products (3W engines as well as Infrastructure equipments). Thus, we project marginal earnings growth in FY14. While the company is launching new products and bagging new accounts, but an upswing in earnings remains contingent on sustained economic recovery.

- Nonetheless, valuations are reasonable at PE of 9.0x and EV/EBITDA of 4.9x. Plus, return ratios remain healthy even in current environment, underscoring the strength of the business. We maintain BUY with an revised target price of Rs 85 (Rs 92 earlier).

- Risks and Concerns: Upgrade by customers to 4W LCVs may cannibalise 3W LCV volumes which is the stronghold of GCL. We would remain watchful about this emerging threat.

Source : Equity Bulls

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