Sharekhan interacted with the management of Greaves Cotton to take a deep dive into the company's new transformative business goals. Greaves Cotton has expanded its three-wheeler (3W) diesel engine business to last mile mobility and has moved from one product/application/ fuel to multi-product/application/clean-tech focused businesses. Greaves Cotton share price today is Rs 141, up Rs 1.5 or 1.1%.

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Greaves Cotton has also increased its value from moving closer to customers by increasing retail focus. Greaves Cotton has also introduced a new range of products and worked on focussed strategy to re-organise group businesses into five divisions, viz. automotive, non-automotive, e-mobility, retail, and finance business. 

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Greaves Cotton started the transformation in FY2018, which has started to reap benefits. The company has incubated multi-businesses in-house, which includes non-auto engines, electric two wheelers (e-2W), e-rick, mega/smart gensets, Greaves care (retail services arm), and multi brand spares divisions. The performance, acceptance, and success of new businesses have aspired Greaves to take bigger strides and expand businesses. Sharekhan continues to maintain our positive stance on Greaves because of its timely investments in the e-mobility business.

Greaves Cotton acquired Ampere in 2018 and now holds an 81.2% stake. Through its subsidiary Ampere, Greaves has signed an MOU with Tamil Nadu Government to set up an e-mobility manufacturing facility at Ranipet, with a proposed investment plan of Rs. 700 crore to build capacity of producing one million e-2Ws in a phased manner over a period of 10 years. The plant is expected to be operational in FY2021 with an initial installed capacity of 100000 units of e-2Ws.

Greaves Cotton has ramped up its e-mobility business at a much faster pace than we had anticipated earlier. Sharekhan believes Greaves is well positioned to benefit from the government’s push towards fast adoption of electric vehicles (EVs). Besides, incentives under FAME-II (Faster Adoption and Manufacturing of EVs) scheme, and the government’s ‘Go Electric’ media campaign to spread awareness of the benefits of e-mobility and EV charging infrastructure. Further, the FAME-II scheme is focussed on E-2Ws and E-3Ws, with 52% subsidies provided under the scheme that will benefit Greaves Cotton.

Greaves Cotton other new businesses have also immense capability to grow faster. Greaves’ progress in the non-auto engines division is aspiring, where the company is expanding to new sectors on existing capabilities and, hence, opening doors to new sectors. Given improved insights on new businesses and expectations of improving 3W sales, we have raised our earnings estimates by 2.1% and 13.8% for FY2022E and FY2023E, respectively.

Sharekhan expects Greaves Cotton earnings to report a robust 80.3% CAGR during FY2021E-FY2023E, driven by 24.4% revenue CAGR and a 580-bps improvement in EBITDA margin. Greaves Cotton also has a history of a strong dividend pay-out ratio of 40%-60%, which implies a dividend yield of 3%-3.5%. Hence, Sharekhan maintains Buy rating on the stock with a revised price target of Rs 170.

Greaves Cotton Key Risks:

Greaves Cotton performance can be impacted adversely if commodity prices continue to rise at the current pace. Moreover, prolonged delay in the 3W industry’s recovery can materially impact our revenue projections.