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E-mobility business continues growth momentum

About the stock: Greaves Cotton (GCL) is a leading diversified engineering company with a presence in automotive, non-automotive, aftermarket, retail, electric mobility solution and finance.

* Greaves Engineering business contributes to ~38% while Greaves Retail contributes to ~20% in FY23

* E-mobility is expected to drive future growth (~42% of FY23 revenue)

Q4FY23 Results: GCL reported a strong set of Q4FY23 numbers.

* Standalone revenue came in at | 436.8 crore (vs. I-direct estimate of | 411.2 crore), up 15.3% YoY

* Standalone EBITDA was at | 51.8 crore (vs. I-direct estimate of | 44.8 crore) and | 29.1 crore in Q4FY22. On a consolidated basis, EBIDTA came in at | 49 crore (vs. EBITDA of | 41 crore in Q4FY22)

* Consequently, standalone adjusted PAT was at | 29.5 crore (vs. I-direct estimate of | 29.4 crore) up 75.1% YoY

* Engine (auto, non-auto) volumes grew 32% YoY to 33,726 units

What should investors do? E-mobility and new initiatives businesses may provide much needed long term growth uptick amid languishing engine volumes.

* We remain long term positive and retain our BUY rating on the stock

Target Price and Valuation: We value Greaves Cotton at | 215 on SoTP basis

Key triggers for future price performance:

* Transformation strategy to increase E-mobility and new-initiatives business share to drive long term growth and help transform and de-risk its business

* Consolidation of manufacturing operations into Megasites to bring higher operational efficiencies and reduced fixed costs in the long run

* We expect revenue, EBITDA to grow at a CAGR of ~8.9%, 14.9%, respectively, in FY23E-25E

Alternate Stock Idea: We also like AIA Engineering in our coverage

* We expect revenue, EBITDA to grow at a CAGR of ~20.5%, 30.5%, respectively, in FY22-25E aided by sustained margins in range of 22-23%

* BUY with target price of | 3135

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