Buy Greaves Cotton; target of Rs 104: Sharekhan

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Buy Greaves Cotton; target of Rs 104: Sharekhan

Sharekhan is bullish on Greaves Cotton and has recommended buy rating on the stock with a target of Rs 104 in its October 28, 2011 research report.

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Sharekhan is bullish on Greaves Cotton and has recommended buy rating on the stock with a target of Rs 104 in its October 28, 2011 research report.

"We expect Greaves Cotton to deliver a 13.4% sales growth in FY2012 against the annualised FY2011 sales. The company commenced supplies to Tata Motors from Q2FY2012 and is now adding significant scaleability to this business. Based on the ramp-up plans, we estimate that the Tata Motors business alone would yield a 10% growth sequentially in Q3FY2012. Overall, we estimate H2FY2012 would deliver 24.7% higher revenues over H1FY2012. The engine business would be the key growth driver while the infrastructure segment, which has surprised us negatively, would remain a drag."

"Against our estimate of a 13.45% top line growth for FY2012, the operating profit is expected to grow by 4.2%. The sharp contrast in the revenue growth and margin was owing to an increased contribution from the low-margin business of Tata Motors. We are estimating a 100-basis-point increase in the raw material cost for FY2012 and expect the other expenses to go up by 30 basis points. The FY2012 PAT is expected to grow marginally by 1.1% on account of a higher base of the other income in the corresponding period of the previous year together with higher depreciation and interest charges."

"We are increasing our FY2012 top line estimate by 6% on account of a better than expected offtake from Tata Motors. However, we are reducing our FY2012 earnings per share (EPS) estimate by 11% to Rs7 to factor in the margin contraction. For FY2013 we expect the company to report EPS of Rs8.3. Our new price target of Rs 104 discounts the FY2013 EPS estimate by 12.5x. We maintain our Buy recommendation on the stock," says Sharekhan research report. 

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