Greaves Cotton zooms 8% as Edelweiss retains buy on strong ROE

However, Edelweiss trimmed its FY17/18 EPS estimates by 10 percent building in impact of demonetisation and delayed recovery in 3W industry.

February 17, 2017 / 15:25 IST

26 Aug, 2025 12:21

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Engineering company Greaves Cotton shares touched a 52-week high of Rs 154, up 7.8 percent intraday Friday after Edelweiss retained its buy call on the stock, citing strong return on equity (RoE) and surplus cash position.

"While revenue growth and earnings are expected to gather pace gradually, we like Greaves’s cost-based leadership position in 3-wheeler industry. Also, with average free cash flow (FCF) of Rs 100 crore plus, surplus cash position and RoE profile of 20 percent plus, we maintain buy," the brokerage house says.

It further says Greaves is an established cost-based leader targeting higher volumes across businesses and expects to reap benefits of same over next 2-3 years, given management's focus on expanding product portfolio.Management highlighted aftermarket business continued to do well and grew in double digits during the quarter, led by newly introduced multi-brands spares business. DG set segment too sustained improvement in volumes (840 units versus 460 units in Q3FY17), led by market share improvement and ramp up of the new node launched by the company.

While the research firm remained positive on growth prospects of 3W industry, key monitorables are acceptance and ramp up of new engines launched by Greaves; Bajaj Auto getting aggressive in the 3W cargo space where Greaves has more than 80 percent market share, it says. Overall 3W industry in Q3 declined 18 percent, while cargo grew 7 percent. It reported flat revenue growth for the quarter.

Company's Q3FY17 EBITDA margin (at 15.1 percent) dipped 180bps impacted by negative operating leverage and adverse product mix, as auto engine volumes fell more than 15 percent hurt by demonetisation, though has picked up in February.