Result Update: Greaves Cotton Ltd - REDUCE - TP Rs.136 - Kotak

Greaves Cotton (GCL) reported weak numbers, which although topped our revenue estimates but missed out on the profit estimates due to decline in EBITDA margins. 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.

The company's largest revenue segment ie three-wheeler engines business continues to go trhough a prolonged phase of slowdown due to 1) preference towards four-wheeler SCVs 2) Shift away from diesel engines due to enviro-norms and 3) Emergence of electric vehicles. GCL is responding to this challenge by positioning itself as a fuel-agnostic engine maker including electric mobility. However, near term growth is likely to remain subdued.

GCL is currently trading at 20.0x and 17.5x FY18 and FY19 earnings respectively. We review rating to "Reduce" in view of tepid growth outlook and minor upside to our unchanged target price of Rs 136 (18x FY19 earnings earlier). We would take a favourable view of the stock at lower price points as the dividend yield of the stock is attractive at ~ 4.2%.

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.122.15 as compared to the previous close of Rs. 123.25. The total number of shares traded during the day was 109811 in over 1637 trades.

The stock hit an intraday high of Rs. 125.15 and intraday low of 121. The net turnover during the day was Rs. 13478291.

Source : Equity Bulls

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