Noted broking firm Sharekhan has a "buy" call on the stock of Greaves Cotton and sees a potential upside of as much as 50% on the stock of the company.
Buy Greaves Cotton for a price target of Rs 194
|Current market price||Rs 129.55|
|Target price||Rs 194|
The brokerage sees a rally in the stock to levels of 194, from the current market price of around Rs 130. According to Sharekhan, Greaves Cotton reported weak performance in Q1FY22, marred by lockdown restrictions due to the second wave of COVID-19.
Standalone and consolidated net revenues declined 53.1% q-o-q and 56% q-o-q to Rs 214.4 crore and Rs 229 crore respectively in Q1FY22. The drop in revenue was due to lockdown restrictions. The 3W segments was down 72% q-o-q, while Ampere sales was impacted due to 8 weeks COVID led factory lockdown in Coimbatore. The consolidated gross margin improved 10 bps q-o-q to 28.6% in Q1FY22.
Rationale for buying the stock
According to Sharekhan, the company's management says it is witnessing strong recovery from July 2021 onwards. We expect Greaves Cotton to clock a 24% revenue CAGR during FY2021-23E also see a sharp rise in margins, leading to a 245% earnings CAGR," the broking firm has said.
"Greaves has ramped up its e-mobility business at a much faster pace than we had anticipated earlier. Recently, Ampere has acquired a strategic stake in L5 e-3W manufacturer, MLR Auto, to operate as a full range last mile electric vehicle company with mass mobility solutions in both E-2W & E-3W segment. We believe Greaves Cotton is well positioned to benefit from the government's push towards fast adoption of electrical vehicles.
We continue to maintain our positive stance on Greaves because of its timely investments in the e-mobility business. Greaves acquired Ampere in 2018 and now holds an 81.2% stake. Through its subsidiary Ampere, Greaves is setting up a EV mega site manufacturing facility at Ranipet, with a proposed investment plan of Rs. 700 crore to build capacity of producing one million e-2Ws in a phased manner over a period of 10 years," the brokerage has said.
"In addition to its new venture in e-2W business, the company has incubated multi-businesses in-house, which includes non-auto engines, e-rick, mega/smart gensets, Greaves care (retail services arm), and multi-brand spares divisions. In our view, the refocus strategy has played well for the company, as Greaves Cotton has managed to display a strong quarterly revenue run-rate despite lacklustre sales in 3W engines with Q1FY22, being an exception," the brokerage has said.
Sharekhan says that it maintains a buy on the stock Greaves Cotton Limited with an unchanged price target of Rs. 194, owing to positive business outlook for mobility business.
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