Greaves Cotton Ltd - ACCUMULATE - TP Rs.136 - Result Update - Kotak

- Greaves Cotton (GCL) reported weak numbers that missed our revenue and profit estimates. The company continues to face growth challenges in view of slowdown in 3W sales of its OEMs and delay in firming up new OEMs for engine supplies. Over the longer term, the company will have to contend with challenge from shift away from fossil fuels to electric engines. Our previous call on the stock was "Reduce" as we expected the earnings to continue to disappoint and hence believed that valuations need to correct. Since our previous update in Q1FY18, the stock has corrected sharply by 19%. While the growth outlook remains tepid (we have cut earnings), we take note of the attractive dividend yield of ~ 4.3%, which in our view reduces downside risk. Moreover, if the demand for the company's products start to pick up, then there could even be potential upside to the stock. Considering this, we upgrade the stock to "Accumulate" (Buy on declines as upside is modest). We value the stock at 18x FY19 earnings (20x FY19 earnings earlier) and arrive at a price target of Rs 136 (Rs 170 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.

Shares of GREAVES COTTON LTD. was last trading in BSE at Rs.121.15 as compared to the previous close of Rs. 122.2. The total number of shares traded during the day was 41664 in over 484 trades.

The stock hit an intraday high of Rs. 123 and intraday low of 120.6. The net turnover during the day was Rs. 5055678.

Source : Equity Bulls

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