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Shares Of Mid Cap Engineering Stock Slips 10%, Sharekhan Suggests Buy For 38% Upside
Brokerage firm Sharekhan has recommended mid cap engineering sector stock, Greaves Cotton Ltd with a target price of Rs 183. The analyst expects 38% return if investors buy Greaves Cotton at the current market price of Rs 133 apiece. Greaves continues to grow strongly, aided by timely investments and expansion in e-mobility and non-auto businesses.
We expect the 3W industry to gain demand, as the economy moves towards normalcy. Check details below:
1. Greaves Cotton Stock Performance & Return
The current market price of the stock is Rs 133 apiece. The stock's 52-week high is Rs 258 apiece and 52-week low is Rs 124 apiece, respectively. The company has a market capitalisation of Rs 3091 crore. The stock has fallen 10% in last 3-months and gained nearly 2% in last 3-years.
2. Scaling E-Mobility Business To Drive Profitability
E-mobility business continues to be EBIT positive in Q1FY23 after turning EBIT positive in Q4FY22, with sales volumes (e-2W + e-3W) of 29,577 units in Q1FY23, a growth of 1274% y-o-y and 19% q-o-q. We expect GEML's EBITDA margins to improve to 8.5% in FY25E and contribute 44% to the company's consolidated EBITDA.
3. Diversification Reaping Benefits To Greaves
Under the refocus strategy, the company has transformed is businesses to expand its markets from 3W diesel engines to last-mile mobility, move beyond one product/application/fuel with focus on clean tech, increasing value to customers through B2C, expand products to solutions, and leverage the company's brand and penetration. Persistent efforts from the management paved a profitable growth path for the company.
4. Valuation
According to Sharekhan, "We expect the financial performance of the e-mobility business to strengthen going forward, driven by increasing contribution of high-speed e-2Ws, increasing retail penetration, and new launches. The stock trades at a P/E multiple of 21.2x and EV/EBITDA multiple of 9.1x its FY2024E estimates. Thus, we reiterate our Buy rating on the stock with a 12-month PT of Rs.183."
Key Risks: The company's performance can be impacted adversely if commodity prices start to rise again in the near term. With larger players getting aggressive in the EV space, competition is expected to intensify, which may affect the company's profitability in the medium term.
5. About Greaves Cotton
Greaves is one of the leading suppliers of powertrain and related solutions to auto original equipment manufacturers (OEMs). The company has a lion's share in the 3W diesel segment.
The company's products can be classified into four categories - engines (48% of sales), aftermarkets (21% of sales), e-mobility (31% of sales), and others (1% of sales). The other segment includes power gen sets, agri-equipment, and other application-based engines.
Disclaimer
The stock has been picked from the brokerage report of Sharekhan. Greynium Information Technologies, the Author, and the respective Brokerage House are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before taking any investment decision.
