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Our Take:

 With over 160 years of extraordinary legacy and brand trust, a multi-product and multi-location company - Greaves Cotton Limited (GCL)- is a diversified engineering company and a leading manufacturer of Cleantech Powertrain Solutions (CNG, Petrol and Diesel Engines), Generator sets, Farm equipment, E-Mobility, aftermarket spares and services. With a market share of 65-70% in domestic diesel engines segment, Greaves Cotton is currently witnessing prolonged weakness due to slowdown in three-wheeler industry. We believe a recovery in three-wheeler sales will boost the core business of automotive engines. In a strategic move - company has sought to expand its non-automotive business and that business is growing well. , We expect nonautomotive segment to continue to do well and reduce seasonality/cyclicality in business.

The government, through its revised subsidy scheme, is seeking to provide a push for faster adoption of e-mobility. GCL is well-positioned to take benefit of e-mobility space. The acquisition of Ampere and E-rick will help it achieve strong growth in the EV space. The company has also taken a big bet on hyper growth e-mobility by investing Rs 700 crore in expansion of its megasite at Ranipet in Tamil Nadu. It has a wide range of product portfolio for e-2ws and e-3Ws, from slow to high speed, which can help inch up its market share.

Valuation & Recommendation:

GCL is ready to take off and achieve growth in e-mobility segment through its strong R&D capabilities, manufacturing capacity and inorganic expansion. We believe that recovery in 3W industry will boost its core business, even as growth of non-automotive business remains intact. GCL is a leading player in the automotive industry for over 160 years and has a high market share in domestic diesel engines segment, enabling it to deliver over 20% ROE and a net-cash balance sheet. The restructuring activities undertaken by GCL over the past 4-years to achieve business diversification have started to bear the fruits, the new businesses now contribute 30% (FY21) of overall business.

A gradual transition from diesel-based auto engines (reduced to 37% from 50%+) led business to E-mobility (rapidly increased to 12%) and non-auto segment is underway. GCL has added Fintech & Technology ventures as enablers to E-mobility and Retail solutions. We estimate Revenue/EBITDA/ PAT will grow at CAGR 20%/81%/195% over FY21-FY23E, on account of the robust growth in non-automotive division, growth opportunity in e-mobility, and control over the operating cost.

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