Greaves Cotton reported in-line gross sale numbers at Rs444cr. Reported sales
were up 5.1% yoy. Engines segment (96% of 1QFY2017 revenues) reported 3.1%
yoy increase in sales to Rs427cr. Others segment (4% of 1QFY2017 revenues)
benefitted from strong performance seen across their Farm Equipment business &
Auxiliary Power business. This segment on lower base, reported strong 68.6% yoy
increase in revenues to Rs18cr.
GC reported 65bps yoy decline in its EBITDA margins during 1QFY2017 to
13.3%. Strategic initiatives to build the business for future led to increase in other
expenses, which witnessed 13% yoy increase to Rs39cr (8.7% of 1QFY2017 sales).
If we look at segment-wise EBIT margins, then both, Engines & Others segment
reported 31bps and 97bps, yoy decline in 1QFY2017 to 15.5% and 6.8%,
In-line with yoy EBITDA margin decline, PAT margins also declined 169bps yoy to
8.7%. On adjusting for exceptional items, Adj. PAT margins expanded 131bps
yoy to 9.9% in 1QFY2017.
Valuation: Considering margin expansion scenario, debt free status and strong
cash flow generating profile, we expect Greaves stock to trade at premium
valuations. At CMP of Rs139, Greaves is trading at FY2017E and FY2018E, P/E
multiple of 17.8x and 16.4x, respectively. Given that the current valuations are
capturing all the positives, we have NEUTRAL rating on the stock.

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