Sharekhan is optimistic on the stock of Greaves Cotton Limited and sees e-mobility and diversification benefiting the company. Greaves Cotton reported strong Q4FY22 results, with better than expected revenue, EBITDA and PAT. Net revenue was up 19.3% y-o-y and 27.6% q-o-q to Rs621 crore in Q4FY22, led by the performance of subsidiary businesses.
E-mobility now driving revenues for Greaves Cotton
According to Sharekhan, the E-mobility business accounts for 38% of overall revenue in Q4 and turned profitable. EBITDA margin for Q4FY22 stood at 6.5%, which is a 370-bps q-o-q improvement, led by improved product mix, operating leverage benefits and cost reductions. The management remains positive on its diversification strategy and expects to normalize its sales and profitability going forward. The e-mobility is showing strong growth, despite the supply constraints due to chips and parts shortage.
"We expect Greaves to clock a 20.5% revenue CAGR during FY2021-24E and also see a sharp rise in margins, leading to an earnings CAGR of 103.4%. The company's diversification strategy is reaping benefits with new businesses contribution increasing to 49% of total revenue in FY22 versus 30% in FY21. The stock price has corrected 32% over the last three months, making valuation comfortable at P/E multiple of 24.8x and EV/EBITDA multiple of 14.2x its FY2024E estimates. Thus, we upgrade our rating to Buy with a revised price target of Rs178," the brokerage has said.
According to Sharekhan, the company is witnessing a strong recovery in sales post the lockdown restrictions in the second wave of COVID.
"The Ampere EV sales were showing strong recovery, with Q4FY22 having higher ever quarterly sales. The three-wheeler shared mobility is expected to gain volume momentum as the economy goes back to normalcy. The company's management is optimistic about the growth outlook and expects sales to recover going forward. The restructuring of business and consolidation of plants helped the company to save fixed overheads of Rs 40 crore, which is 2.3% of sales. The cost restructuring has brought down a break-even point in the engines business vertical," the firm has said.
The E-mobility business turns positive during the Q4FY22, with sales volumes (e-2W + e-3W) of 24,953 units, a growth of 148% y-o-y and 15% q-o-q. For FY22, the company sold 62,142 units of e-mobility products, registering a growth of 128% y-o-y. e-3W sales contributed 11.2% in Q4FY22, while it contributed 16.6% in FY22. The company has augmented its manufacturing capacity of e-2W by operationalizing the Ranipet plant with the current production capacity of up to 250,000 vehicles per year and expanding the product portfolio with the introduction of Ampere Magnus EX
E-mobility to drive next phase of growth
According to Sharekhan, Greaves is well poised to benefit from the faster adoption of EVs in India, especially in the e-2W and e-3W segments, where the company has a strong portfolio and growth strategies in place with the Government pushing faster adoption of EVs in the country. "Greaves has ramped up its e-mobility business at a much faster pace than we had anticipated earlier. We believe Greaves is well positioned to benefit from the government's push towards the fast adoption of EVs. We continue to maintain our positive stance on Greaves because of its timely investments in the e-mobility business. The electric vehicles are performing well, with 70% high-speed vehicle mix and 91% Lithium-ion vehicle mix. The company has strengthened e-3W business with the subscription of a 26% stake in MLR Auto (which specializes in L5 cargo and passenger 3W) and acquiring the remaining 26% in Ele E-Rickshaw," the firm has said.
The above is picked from the stock report of Sharekhan. Investing in stocks is risky and investors must exercise caution. Greynium Information Technologies Pvt Ltd, the author and the broking house are not responsible for losses based on the article.