ICICI Direct recommended hold rating on Greaves Cotton with a target price of Rs 75 in its research report dated June 09, 2020.
ICICI Direct's research report on Greaves Cotton
Greaves Cotton’s (GCL) standalone revenues came in at Rs 359.6 crore, down 32% YoY vs. I-direct estimate of Rs 428.2 crore, impacted by dismal engine volumes amid auto slowdown and Covid-19 lockdown. Declining topline and recurring fixed costs impacted the operating performance. EBITDA de-grew 56.3% YoY to Rs 30.6 crore (vs. I-direct estimate of Rs 51.4 crore). Further, EBITDA margins contracted 475 bps YoY to 8.5% (vs. I-direct estimate of 12%) as GCL was unable to pass through the price increase for BS-VI engines. PAT came in at Rs 10 crore, down 73.2%. Decline in PAT is largely attributable to a weak operating performance, exceptional item of Rs 5.0 crore and a decline of 61% in other income that came in at Rs 3.3 crore.
Outlook
Overall auto engine volumes may remain sluggish in the medium term due to BS-VI transition and economic slowdown amid Covid-19. While new product launches in high speed E-2W vehicles (launch of Magnus high speed E-2W soon) at Ampere and new business initiatives (CNG engines, after market and B2C business) may provide much needed growth uptick in the long term. We build revenue, PAT CAGR of -4.6%, -7.4% over FY20-22E, respectively. We value GCL (base business at 12.5x on FY22E and Ampere at 1.5x P/sales on FY22E) at Rs 75/ share and maintain HOLD rating.
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