Top Brokerage Firm Upgrades Target Price For Stock of Greaves, Business Grew 52% YoY

Brokerage firm Chola suggests buying the stock of Greaves Cotton, upgrading the target price for the stock. The contribution of B2C business to the overall business has grown by +52% YoY when compared to Q1FY22. The new business growth has been from 29% in 1QFY22 to 56% in 1QFY23.

Stock To Buy: Target Price

The Current Market Price (CMP) of Greaves Cotton is Rs. 174. Chola has estimated a Target Price for the stock at Rs. 190. This stock has the potential to give a 9.19% return, in the upcoming 1 year. It is a small-cap stock with a market capitalization of around Rs. 4,032 crore.

Stock Outlook
Current Market Price (CMP)	Rs. 174
Target Price	Rs. 190
Potential 1 year return	9.19%
52 week high share price	Rs. 258.90
52 week low share price	Rs. 129.05

Financial Result

Greaves cotton (GCL) reported standalone revenues of Rs. 3.7bn (+74.3% YoY/-1.3% QoQ) led by volume growth in certain segments. On a consolidated basis, GCL reported its highest ever quarterly revenue of Rs. 6.6bn up by 188% YoY and 6% QoQ. New business share of 56% YoY and an increase in E-Mobility volume of 29,577 units (+1274% YoY) has majorly contributed to the solid consolidated topline performance of the company. Strong show in EV business drove business growth in the consolidated segment.

Segment wise growth

The engine segment volume in 1QFY23 came in at 26,222 units (+39% YoY). The non-auto engine volumes grew 7% YoY to 10,110 units, while the auto engine volumes grew at 71% YoY to 16,112 units. Electric mobility accounted for 43% of overall revenue in 1QFY23. The E-mobility segment had strong growth in volumes. The gross margins in the EV segment were at 20% while EBITDA margins were at 5% for 1QFY23.

Stock Advantages: Chola

According to Chola, "GCL's transition from a conventional auto engine maker to E-mobility player is gaining traction each quarter and has started to bear the fruits. The robust demand outlook of E-mobility and company's strong thrust over improving capacity affirms better performance over the long term. The improved product mix with higher Hi-speed variants will boost the margins. At the current market price, the stock trades at 38.8x/28.0x on its FY23/FY24E earnings. We revise our price target to Rs. 190 (previously Rs. 160) while retaining the out-performer rating on the stock. However, high diversification can lead to a decline in margins. High input costs and a slowdown in sales."

Capital management

GCL's plan to consolidate manufacturing operations into mega sites is expected to reduce fixed costs and bring higher operational efficiencies in the long run. The management has a strong working capital management with robust cash generation to fund expansion. GCL is one of the fastest growing brands in E-Mobility. The quarterly E2W sales are at 28,787 units. Magnus EX is the highest contributor of revenue. The company has drastically increased its high-speed vehicle mix from 18% to 79% YoY. Lithium-ion has also been increased to 100% from 60% YoY by wiping out Lead acid totally. 

Company Portfolio:

Greaves Cotton (GCL) is one of the largest manufacturers (primarily) single cylinder (diesel, gasoline engines) and dual cylinder engines, which find application in running 3-W vehicles and 4-W small commercial vehicles (SCVs). The company offers products and solutions across business units- Engines, power, farm equipment, mobility and aftermarket. In FY19 Greaves Cotton augmented its Clean Technology portfolio with an entry in the last-mile affordable 2W personal Mobility segment with Ampere Electric Vehicles and e-rickshaws in last-mile people transportation segment.

Disclaimer

The above stock was picked from the brokerage report of Chola. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.