Buy Greaves Cotton; target of Rs 124: Emkay

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Buy Greaves Cotton; target of Rs 124: Emkay

Emkay Global Financial Services is bullish on Greaves Cotton (GCL) and has recommended buy rating on the stock with a target price of Rs 124 in its July 27, 2011 research report.

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Emkay Global Financial Services is bullish on Greaves Cotton (GCL) and has recommended buy rating on the stock with a target price of Rs 124 in its July 27, 2011 research report.

"Greaves Cotton (GCL), Q1FY12 performance meets expectations (1) Revenue growth at 16% yoy to Rs4.0 bn (2) EBITDA margins up 110 bps yoy to 14.2% (3) APAT up 26% yoy to Rs350 mn. Continued traction in both division (1) Engines - Revenues up 14% yoy with EBIT margins at 17.6% (2) Infrastructure - Revenues up 29% yoy with EBIT of Rs2 mn. Reiterate that GCL is in a sweet-spot with strong growth drivers in Engines (automotive) and Infrastructure segment (turned profitable). Trading attractively at 9.3X FY13E earnings with healthy cash flow generation, +30% ROE."

"Greaves Cotton (GCL) Q1FY12 performance met expectations - belying concerns on sustaining growth momentum and margins in presence of adverse business conditions. Revenues grew by 16% yoy to Rs4019 mn, in line with estimates - led by both Infrastructure (up 29% yoy) and Engines (up 14% yoy) segment. EBITDA margins expanded by 110 bps yoy to 14.2%, marginally lower than estimates owing to higher than expected other expenses. Consequently, EBITDA growth at 25% yoy to Rs570 mn was marginally below estimates. But, net profit growth at 26% yoy to Rs350 mn was in line with estimates - aided by lower than expected depreciation and interest charges.  The Engines division posted healthy revenue growth at 14% yoy to Rs3.4 bn (in line with estimates) on back of healthy volume growth in both automotive and nonautomotive segments. The EBIT margins expanded by 50 bps yoy to 17.6% - contrary to our estimate of a decline in margins."

"Infrastructure division performance was in line with expectations with continued revenue growth momentum and corresponding improvement in profitability. It posted yet another quarter of strong revenue growth at 29% yoy to Rs486 mn - in line with estimates. It posted EBIT profit of Rs3 mn (Vs loss of Rs11 mn quarter ending Jun'11) - in line with estimates. Even in tough business environment, Greaves Cotton has reported a robust performance with no negative surprise. Further, Greaves Cotton is relatively well-placed in the ECG space with strong growth drivers in Engines and Infrastructure segment. We maintain our FY12E and FY13E earnings of Rs7.9 and Rs9.4 per share respectively. At CMP, GCL is trading attractively at 9.3X FY13E earnings given healthy cash flow generation, +30% ROE. We retain our BUY rating with price target of Rs124," says Emkay Global Financial Services research report.

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