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Mixed show; sees strong growth in e-mobility business

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

New business share increased to ~30% while auto engine reduced to ~37% from FY17 to FY21. Overall, B2C share increased to ~60% in FY21

E-mobility is expected to drive future growth (~12% of FY21 revenue)

Q3FY22 Results: GCL reported mixed Q3FY22 numbers amid supply disruptions.

Standalone revenue came in at | 300.5 crore (vs. I-direct estimate of | 410.1 crore), down 31.2% on a YoY basis

Standalone EBITDA of | 17.2 crore (vs. I-direct estimate of | 28.7 crore) declined 68% YoY, impacted by restructuring, pandemic, higher commodity prices

Consequently, standalone adjusted PAT of | 9.3 crore (vs. I-direct estimate of | 15.9 crore) declined 70.7% YoY

Engine (auto, non-auto) volumes declined 65% to 16631 units YoY

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

We maintain our HOLD rating on the stock

Target Price and Valuation: We value Greaves Cotton at | 220 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 CAGR of ~13.6%, 76.8%, respectively, in FY22-24E

Alternate Stock Idea: We also like Timken India in our coverage.

Timken has a strong balance sheet coupled with decent growth prospects

BUY with target price of | 2405

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