1. business and industrial
2. company
3. merger and acquisition

Result Update
November 5, 2014
Greaves Cotton Ltd. (GC)
Top-line inline….EBITDA margins better than estimates
Current
Previous
CMP : Rs.142
Reco : HOLD
Reco : HOLD
Target : Rs.124
Target : Rs.115
STOCK INFO
BSE
501455
NSE
GREAVESCOT
Bloomberg
GRV IN
Reuters
GRVL.NS
Sector
Industrial Machinery
Face Value(Rs)
2
Equity Capital(Rs bn)
8,264
Mkt Cap(Rs bn)
34,213
52w H/L
144/56
3m Avg Daily Volume(BSE+NSE)
466,751
SHAREHOLDING PATTERN
%
For Q2FY15, Greaves Cotton reported net sales and EBITDA in line with our estimates.
However adjusted net profit of the company (adjusted for exceptional items) was
better than our estimate mainly on account of lower effective tax rate of ~19%
compared to average tax rate of 27-30% in previous quarters. Led by growth in
Engine segment sales by 1.8% and de-growth in Infrastructure equipment sales by
57.7%, Total net sales of the company showed a marginal decline of 1% y/y to
Rs 4,410 mn (vs our estimate of 4,539 mn). Optimization on material and employee
costs coupled with closing down of loss making construction equipment (CE)
business has helped the company in improving its EBITDA margin by 197 y-o-y to
12.7%. EBITDA for the quarter increased by 17.2% to Rs 560 mn (vs our estimate of
545 mn). Helped by lower effective tax rate, adj net profit of the company increased
y-o-y by 31.2% to Rs 421 mn (vs our estimate of 336 mn).
Rs mn
Net Sales
EBITDA
Reported PAT
Adj. PAT
Adj. EPS
Q2FY15
Q1FY15
Q2FY14
q/q
y/y
4,410
560
273
421
1.72
4,218
460
287
294
1.20
4,453
477
(80)
321
1.31
4.6%
21.5%
-5.0%
43.3%
43.3%
-1.0%
17.2%
nmf
31.2%
31.2%
INSPL
Variance
Estimate
4,539
-2.8%
545
2.7%
336
336
25.4%
1.37
25.4%
Standalone Source: Company, IndiaNivesh Research
(as on Sep. 2014)
Promoters
FIIs
DIIs
Public & Others
51.54
4.42
32.06
11.98
Source: BSE
STOCK PERFORMANCE (%) 1m
GREAVES COTTON
SENSEX
3m
12m
1.22 20.08 122.23
4.86 9.34 31.17
Source: Capitaline, IndiaNivesh Research
GREAVES COTTON v/s SENSEX
250
230
210
190
170
150
130
110
90
70
50
Discontinued Operations update:
On 18th Sept-2014, company discontinued manufacturing operations of construction
equipment segment due to non-viability of business. Company is in the process of
disposing off the assets of this discontinued business.
Discontinued Operations:
Rs mn
Q2FY15
Q1FY15
Q2FY14
(89.8)
(113.7)
(74.6)
Gain/(loss) from settlements
(145.5)
0.0
0.0
Profit/(Loss) from discontinued operations
(235.3)
(113.7)
(74.6)
Profit/(Loss) from ordinary activities
Source: Company, IndiaNivesh Securities
On account of various provisions and employee separation cost, company reported
exceptional item loss of Rs 148 mn for the quarter. Management expects further
loss on account of discontinued business to be minimal.
Greaves Cotton
Sensex
Source: Capitaline, IndiaNivesh Research
Daljeet S. Kohli
Head of Research
Exceptional Items Include:
Rs mn
Impairment of assets
Mobile: +91 77383 93371, 99205 94087
Tel: +91 22 66188826
daljeet.kohli@indianivesh.in
Provision for diminution in Value
Rahul Koli
Research Associate
Mobile: +91 77383 93411
Tel: +91 22 66188833
rahul.koli@indianivesh.in
Source: Company, IndiaNivesh Securities
IndiaNivesh Research
Q2FY15
Q1FY15
Q2FY14
(13.8)
(386.6)
Employee separation cost
(46.1)
Provsion for write offs
(60.8)
One time Settlements
(27.3)
Total Exceptional Items
(148.0)
(6.3)
(13.9)
(6.3)
(400.5)
IndiaNivesh Securities Private Limited
601 & 602, Sukh Sagar, N. S. Patkar Marg, Girgaum Chowpatty, Mumbai 400 007. Tel: (022) 66188800
IndiaNivesh Research is also available on Bloomberg INNS, Thomson First Call, Reuters and Factiva INDNIV.
Result Update (contd...)
Segment wise performance:
Engine Segment has shown a marginal growth of 1.8% to Rs 4,243 mn. Growth in
engine business was mainly led by three wheeler engine and Gensets sales which
grew (In volume) by ~16% and ~4% respectively. Four wheeler engine has reported
de-growth of ~21%. Farm equipment and industrial engine segment has also
remained under pressure due to unfavourable market conditions.
Continuing its downward path, Infrastructure Equipment sales has declined by ~57%
to Rs 118 mn.
3,922
3,922
Q1FY15
4,243
3,942
4,169
Q4FY14
3,500
3,000
267
238
279
319
346
380
4,000
300
Q3FY14
3,527
4,083
516
4,500
430
500
4,578
5,000
600
400
Engines Segment Income (Rs mn)
4,202
Infrastructure Equipment Segment Income (Rs mn)
2,500
2,000
118
200
1,500
1,000
100
500
0
0
Q2FY13
Q3FY13
Q4FY13
Q1FY14
Q2FY14
Q3FY14
Q4FY14
Q1FY15
Q2FY15
Q2FY13
Q3FY13
Q4FY13
Q1FY14
Q2FY14
Q2FY15
Source: Company Filings; IndiaNivesh Research
Source: Company Filings; IndiaNivesh Research
Impressive growth in EBITDA Margin to 12.7%
Company significantly improved its EBITDA margin from 10.7% in Q2FY14 to 12.7%
in Q2FY15 (vs our estimate of 12%). Growth in EBITDA margin reflects 1) higher
share of engine sales 2) gross margin improvement of 114 bps to 31.4% 2) decline
in employee cost by 6% .
16%
13.9%
14%
12.7%
12.6%
12.5%
11.7%
12%
10.7%
11.0%
10.9%
9.7%
10%
8%
6%
4%
2%
0%
Q2FY13
Q3FY13
Q4FY13
Q1FY14
Q2FY14
Q3FY14
Q4FY14
Q1FY15
Q2FY15
Source: Company Filings; IndiaNivesh Research
Improvement in Working capital and cash position:
Company has improved its working capital cycle in last 6 months. Inventory and
receivables of the company has declined by Rs 382.5 mn in last six months.
Total cash and current investments of the company has also shown improvement
of Rs 583.6 mn in same period.
Capex Plan:
As Company does not have any major expansion (green field/brown field) plan in
next 1-2 years, Capex outgo is likely to be limited to Rs 400-500 mn on account of
regular maintenance, R&D and Product development activity.
Outlook and Valuation:
On shutting-down the CE business, despite revenue losses, we expect EBITDA and
PAT margins to improve. EBITDA & PAT margins during FY14-16E are likely to expand
by 357 bps and 265 bps, respectively, to 13.9% and 9.3%, respectively. In-line with
IndiaNivesh Research
Greaves Cotton Ltd|Result Update
November 5, 2014 | 2
Result Update (contd...)
margin expansion, RoEs are likely to improve from 14.1% in FY14E to 17.3% by
FY16E. However dependence on limited number of clients for its auto engine
business and increased competition in farm equipment and genset business remains
major risk for the company.
At CMP of Rs 142, GC stock is trading at FY15E and FY16E, P/E multiple of 23.9x and
19.4x, respectively. We value the company at 17x PE multiple of FY16E EPS estimate
of Rs 7.3, and arrive at a price target of Rs 124. We maintain HOLD rating on the
stock.
Standalone Financials
Rs in mn.
Q2FY15
Q1FY15
Q2FY14
q/q
y/y
Gross Sales
4,817.1
4,605.7
4,973.2
4.6%
‐3.1%
Exci s e duty
407.0
388.2
519.8
4.8%
‐21.7%
Net sal es
4,410.1
4,217.5
4,453.4
4.6%
‐1.0%
Raw Materi al Cons umption
2,858.5
2,747.2
2,910.0
4.1%
‐1.8%
Purchase of traded goods
168.2
137.5
197.3
22.3%
‐14.7%
Staff cos t
370.9
434.9
394.7
‐14.7%
‐6.0%
453.0
437.5
474.2
3.5%
‐4.5%
3,850.6
3,757.1
3,976.2
2.5%
‐3.2%
EBITDA
559.5
460.4
477.2
21.5%
17.2%
EBITDA Margin (%)
12.7%
10.9%
10.7%
177
197
Other expendi ture
Total Operati ng Expens es
Other Operati ng Income
Depreci ati on
Other Income
Profi t before Int. & Excep. Items
Interest and fi nance charges
Profi t before Int. & Excep. i tems
Excepti onal items
Profi t from Ord. act. before tax
Total taxes
Net profi t from ord. act. after tax
7.8
27.1
‐64.1%
‐89.7%
108.6
104.1
22.1%
27.4%
59.1
44.4
64.2
33.1%
‐7.9%
488.8
404.0
464.4
2.5
2.3
12.1
8.7%
‐79.3%
486.3
401.7
452.3
21.1%
7.5%
553.1%
(148.0)
338.3
(6.3)
(400.5)
395.4
51.8
‐14.4%
65.4
108.0
131.6
‐39.4%
‐50.3%
272.9
287.4
(79.8)
‐5.0%
‐442.0%
‐5.0%
‐442.0%
43.3%
31.2%
258
234
0.0
0.0
Net profi t for the peri od
272.9
287.4
(79.8)
Adj. Net Profi t
420.9
293.7
320.7
Effective Tax Rate (%)
Extraordi nary i tem
0.0
19.3%
27.3%
nmf
PAT Margins (%)
6.2%
6.8%
nmf
Adj. PAT Margins (%)
9.5%
7.0%
7.2%
EPS- Di l uted
1.12
1.18
-0.33
‐5.0%
nmf
Adj. EPS- Di l uted
1.72
1.20
1.31
43.3%
31.2%
Standalone
IndiaNivesh Research
2.8
132.6
Source: Company, IndiaNivesh Research
Greaves Cotton Ltd|Result Update
November 5, 2014 | 3
Result Update (contd...)
IndiaNivesh Securities Private Limited
601 & 602, Sukh Sagar, N. S. Patkar Marg, Girgaum Chowpatty, Mumbai 400 007.
Tel: (022) 66188800 / Fax: (022) 66188899
e-mail: research@indianivesh.in | Website: www.indianivesh.in
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November 5, 2014 | 4
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