GREAVES COTTON . ‘BUY & Add on Dips,

Shareholding Pattern Particulars Dec’17 Sep’17 Jun'17 Promoter 51.0.% 51.0% 51.0% FPIs 7.3% 7.3% 7.2% Insti. 22.0% 26.0% 26.8% N. Insti. 19.7% 15.7% 15.0%

Relative Capital Market Strength

• Greaves Cotton Limited is engaged in manufacturing of engines and engine applications, manufacturing and trading of agro products, trading of spares related to engines and construction equipment.

• The Company's segments include Engines, Infrastructure Equipment and Others. Its Engines segment includes agro products and genets. Its Infrastructure Equipment segment consists of equipment used in road construction, bridges, dams and mining, among others. Its Others segment includes products traded by international and aftermarket business.

• The Company has manufacturing facilities in the states of Maharashtra and Tamil Nadu. Its products are sold in India with export to the Middle East, Africa and the South East Asia Region.

• It produces products and services for market segments, such as real estate, construction, information technology (IT)/IT enabled services (ITES), retail, hospitals, banking and finance, railways, manufacturing and process industry

GREAVES COTTON LTD

1

Mar 07, 2018

Rating Matrix

CMP Rs. 120.6

Rating Buy & Add on Dips

Holding Period 12 to 18 Months

Current Level Investment

52 week H/L Rs. 178.0/112.7

Upside Potential 25%

Face value Rs 2

Sector Industrial Machinery

Category Mid cap

F&O Stock No

Source: Choice Research/ Annual reports; Financial data-Ace equity

Financial Snapshot: Particulars (Rs. Mn) FY15 FY16 FY17 FY18E FY19E Revenue from operations 16,977.1 16,161.0 16,344.0 17989.0 19583.0

EBITDA (Excl OI) 1,998.9 2,942.7 2,493.7 2820.0 2900.0

EBITDA Margin (%) 11.8% 18.2% 15.3% 15.6% 14.8%

PAT 836.3 2,026.2 1,841.0 1960.0 2087.0

NPM (%) 4.9% 12.5% 11.2% 10.9 10.6

ROCE (%) 13.86 34.44 27.47 ROE (%) 10.2 23.4 19.9 18.8 18.7 P/E 16.9 15.4 14.4 EPS 7.5 8.0 8.5 EV/EBITDA 11.3 10.1 9.3 P/BV 3.2 3.1 3.0

Company Synopsis: • Greaves Cotton signs up with Piaggio Vehicles to develop a “new generation of

Powertrain applications • Greaves is re-inventing the Last Mile Transportation space with a wide range of

fuel agnostic products & solutions in Diesel, CNG/Petrol & Electric Mobility space along with fast growing network of Greaves Care to cater to the needs of 3W & micro 4W segment.

Outlook: The Government’s focus on building smart cities and increased spends on

infrastructure board well for the industry ,Furthermore, the thrust on developing smarter urban transport systems and better infrastructure facilities would result in faster mobility. Automotive sector will have a pivotal role to play in providing environmental friendly mobility solutions. As the economic activity gathers momentum and trade volumes pick-up steam, the sector is likely to see improved demand in the future which will benefit the company The Government’s commitment of doubling farmers’ income, massive investments in rural infrastructure development, These factors would further facilitate the mechanization wave to gather pace.

Greaves Cotton Limited, has reimagined the CNG/PETROL fueled 3-wheeler segment, by offering revolutionary linear twin piston technology the engines deliver remarkable improvement in fuel efficiency and performance with significantly lower emissions. With up to 30 % higher fuel efficiency in Petrol and CNG fueled vehicles compared to conventional engines in this space available today, these engines ensure very low tail pipe emissions, thereby meeting BSVI norms & thus help to achieve the carbon load reduction in the environment. This technologically advanced engine will help foray in the CNG/Petrol space with strong value proposition of low total Cost of ownership lending high daily savings

The Company being a debt free company will provide financial stability to company .

The company will focus on after market sales business with 3000 service points and 1200 dealers where margins are expected to be around 30% in future.

Valuation : We are positive on the company backed by launch of wide range of fuel products and growth in economy will boost the revenue .At CMP of Rs. 120.6 GCL is trading at a P/E multiple of 15.4x and 14.4x to its FY18E and FY19E earnings, respectively. On the basis of estimates. we arrive at a target price in range of Rs 140-150 per share, Thus we assign a “BUY& Add on Dips” rating

Particular (Rs. Mn)

Q3FY18 Q3FY17 Change (YoY)

Total Revenue 4472.8 4041 10.7% EBITDA (Excl OI) 622.40 605 2.9%

EBITDA Margin (%) 13.9 15.0

PAT 556.10 441.40 26.0% NPM (%) 12.4 10.9

Quarterly Snapshot:

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Greaves Cotton Limited

Sensex

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FY13 FY14 FY15 FY16 FY17

Margins (%)

EBITDA Margin (%) NPM (%)

2 Source: Choice Research/ Annual reports; Financial data-Ace equity

Particulars (Rs. Mn) FY13 FY14 FY15 FY16 FY17 Revenue from operations 19,061.2 17,359.4 16,977.1 16,161.0 16,344.0 Gr (%) -2.86% -8.93% -2.20% -4.81% 1.13% EBITDA (Excl OI) 2,405.5 1,877.2 1,998.9 2,942.7 2,493.7 EBITDA Margin (%) 12.6% 10.8% 11.8% 18.2% 15.3% PAT 1,480.2 1,234.0 836.3 2,026.2 1,841.0 NPM (%) 7.7 7.1 4.93 12.5 11.2 Net Worth 7,333.0 8,195.8 8,230.7 8,911.3 9,252.9 Total Assets 11,914.7 12,031.4 11,243.4 11,774.9 12,434.5 Debt 158.9 0.0 0.0 0.0 0.0 Cash flow from Operations 1,078.4 1,554.7 2,251.0 2,301.1 1,144.3 D/E (x) 0.02 0 0 0 0 Current Ratio (x) 1.8 2.4 2.7 2.2 2.1 Profitablity ratios (%) ROCE (%) 30.2 23.0 13.8 34.4 27.4 ROE (%) 21.8 15.9 10.2 23.4 19.8 ROA (%) 12.0 9.1 6.3 17.4 14.9 Efficiency ratios (x) Receivable days 53.4 65.2 54.5 43.7 47.2 Inventory days 31.0 32.4 26.3 21.7 23.8 Payable days 49.2 52.0 42.6 46.2 55.4

Companies CMP ROE (TTM) 12MR(%) M. Cap (Rs. Mn)

EPS (TTM)

BVPS EBIDTA Margin (%)

NPM (%)

Bosch Ltd. 18120.0 19.8% -12.2 552660.0 570.6 2882.2 20.8% 15.5%

Greaves Cotton Ltd. 120.6 21.0% -22.0 29450.5 7.4 35.2 14.7% 11.1%

India Motor Parts & Accessories Ltd. 1107.0 10.7% 46.2 9210.2 32.9 306.6 6.8% 5.3%

Kirloskar Oil Engines Ltd. 359.9 10.8% 2.4 52041.5 12.0 111.8 10.5% 6.5%

Escorts Ltd. 860.2 13.8% 2.4 105440.7 23.8 172.6 9.9% 6.3%

Average 4113.5 15.6% 3.6 160840.6 155.7 834.0 13.2% 9.6%

Companies P/E (x) P/Bv (x) P/Sales

(x) EV/EBIDTA

(x) D/E PAT(Rs. Mn)

(TTM) EBIDTA(Rs. Mn) (TTM)

Sales (Rs. Mn) (TTM)

Bosch Ltd. 31.8 6.3 4.9 23.0 0.0 17,402.0 23,315.0 112,012.0

Greaves Cotton Ltd. 16.3 3.4 1.8 12.2 0.0 1,806.6 2,398.9 16,344.4

India Motor Parts & Accessories Ltd. 33.6 3.6 1.8 26.1 0.0 273.9 352.2 5,189.0

Kirloskar Oil Engines Ltd. 29.9 3.2 1.9 18.5 0.0 1,738.9 2,811.6 26,736.1

Escorts Ltd. 36.2 5.0 2.3 23.0 0.1 2,916.6 4,578.1 46,237.7

Average 29.6 4.3 2.5 20.6 0.0 4827.6 6691.2 41303.9

Peer Comparison:

Financial Snapshot:

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Source: Choice Research/ Annual reports; Financial data-Ace equity

Company Business: Greaves Engines: Greaves lightweight diesel/gasoline engines are highly fuel efficient and come with very low cost of ownership. These engines meet the compliance norms which are ideal for automotive engine applications such as 3 wheeler and small 4 wheeler commercial vehicles. In addition to this, there is a reliable range of bigger engines catering to the usage of wider industrial applications. Greaves Power :Greaves manufactures a wide range of generator sets in the range of 2.5 kVA to 500 kVA. These products are manufactured at the Greaves Plant in Chakan, an ISO 9001-2000 certified facility, powering critical installations and multifarious applications benefiting everyday life. Greaves Agriculture : Greaves manufactures a wide range of pump sets, power tillers and light agri equipment that are powerful, reliable and fuel efficient. These products are made-in-India and require low maintenance. Now, mechanised farming has become simpler using Greaves light agri equipment which includes the brush cutter, the reaper, the weeder, the sprayer and the mini power tiller. Thus, right from land preparation to harvesting, we enhance productivity at every stage of the crop cycle with mechanized equipment to help farmers. Greaves Spares: Greaves manufactures a wide range of trusted, genuine and affordable spares which are available across the country. It supports the proposition of care in the after-market domain for all product lines. Greaves also provides guaranteed assurance to all customers to go anywhere, do anything and still completely rely on it. Our Greaves auto part store is a one stop shop for all your spare part needs across various brands. Key initiatives • Greaves is re-inventing the Last Mile Transportation space with a wide range of fuel agnostic products & solutions in

Diesel, CNG/Petrol & Electric Mobility space along with a fast growing network of Greaves Care to cater to the needs of 3W & micro 4W segment.

• Companies products & solutions are showcased at the Auto Expo 2018.Diesel and CNG/Petrol portfolio on track for BS-VI launch, customer tie ups in progress New breakthrough technology for CNG/Petrol 2W & 3W segment being developed in partnership with Pinnacle Engines. Electric drive train and full electric solution for 3W OEMs being developed in partnership with Antigen Propulsion Labs.

• E3 Electric concept vehicle with Greaves electric powertrain also on display Auto Expo. Strengthening Genets business through focus state approach and marketing initiatives to improve market share and reach. Expanding pump sets and light agri equipment portfolio. Expanding 3W multi-brand spares portfolio and network. Entering 3rd party distribution through partnerships. Piloting Greaves Care business model in 30+ outlets across India.

Q3 Result analysis • Greaves Cotton Limited revenue increased by 11 % to Rs 4472.8 MN for December Quarter of 2017 as against Rs

4041.0 mn for the same quarter of the previous year .backed by good growth in all segments • EBIDTA increased by 3% (YoY) to Rs. 622.4mn. for Q3FY18 as against Rs. 605 mn. in the corresponding quarter previous

year in spite of commodity inflations EBIDTA level were maintained by cost effective measures • Gross Margins adverse due to changeover from BSIII to BSIV and commodity inflation. • Profit after tax (PAT) for the Q3FY18 increased by 26% (YoY) to Rs. 556.0mn. from Rs. 441.0mn. for the corresponding

quarter of the previous year was on account of growth in top line

Revenue Segmentation

96%

4%

Domestic Export

Geographical Segmentation

51%,

19%

14%

12% 3%

Automotive After market Farm Equipment Gensets Others

3

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Source: Choice Research/ Annual reports; Financial data-Ace equity

Greaves Cotton signs up with Piaggio Vehicles to develop a “new generation of Powertrain applications” • Greaves Cotton Limited & Piaggio Vehicles, a leading automotive OEM in 2W, 3W and 4W segment, who took pioneering

efforts in establishing the last mile connectivity in India, have signed an agreement to develop a new generation of powertrain solutions meeting BS-VI norms using Diesel & Alternate Fuel in the clean energy space.

• Piaggio started their journey with Greaves Cotton Limited in 1998-1999 & since then, this relationship has only grown between the two companies establishing economical last mile transportation solution for Indian urban & semi-urban markets. Greaves has been a close partner with the Italian major, working and contributing towards their growth. The two-decade long story of success of Greaves engines having sold more than 5 million engines in this period has grown with the trust, dependency & confidence on Greaves products coming from technology, reliability, class leading cost of ownership & super I oron-street performance.

• Greaves has been producing their automotive engines from their plants at Aurangabad and Ranipet (Chennai) with their R&D centers based out of Aurangabad & Pune. They have been successfully powering the last mile transportation segment, popularly known as the three-wheeler and the micro-truck segment below 1000kg. Greaves has been constantly innovating their products to ensure superior total cost of ownership solutions keeping in mind the end customers’ affordability and need of the consumer while carrying passengers and cargo typical to Indian needs.

Greaves reinvents last mile mobility solutions in India with class-leading new technologies & solutions • In line with its vision of bringing the best of technology to India, Greaves Cotton Limited, India’s leading engineering

solutions company, is proud to announce the launch of two new powertrain solutions at the Auto Expo 2018. Both these solutions offer class-leading fuel efficiency and reduced emissions, addressing the growing alternate fuel segment and the emerging electric vehicle segment. Greaves is also showcasing BSVI ready versions of its Diesel and CNG powertrains that it currently supplies to over 30 OEMs in the 3-wheeler and micro 4-wheeler segments. On display at the Auto Expo 2018 is an all new family to multi-cylinder turbo-charged intercooled engines which are BSVI compliant. Greaves Cotton will also be introducing Greaves Care - India’s largest multi-brand organized service and spares network for 3Wheelers & micro 4Wheelers. With the introduction of these innovative engines and aftermarket solutions, Greaves Cotton aims to reinvent the Last Mile Mobility Solutions and services space.

• Additionally, Greaves Cotton is showcasing for the first time in India high performance electric powertrains that are completely ‘Made in India’. At the heart of this power train is an ultra-light compact high output induction motor, developed by Altigreen Propulsion Labs. This motor is controlled by a compact high performance custom designed motor controller working with lithium ion batteries. The EV powertrain is being showcased as a proof of concept on existing 3W Auto on the Auto Expo Ferry vehicle, to demonstrate market ready technology.

Greaves Cotton Limited’s Fight Against Spurious Spare Parts Continues • In its endeavor to provide only genuine products to the customers, Greaves Cotton Limited, one of India's leading

engineering firms, has intensified its nationwide initiative of cracking down on the businesses of spurious auto parts by successfully carrying out two raids in Coimbatore.

• The company recently seized spurious products from M/S Lumesh Auto and M/S RC Auto Centre in Coimbatore. The manufacturing and selling of counterfeit products is against Greaves’ philosophy of providing only genuine spare parts. This exercise, aiming to curb the menace of spurious spare parts is demonstrative of Greaves Cotton’s commitment to its millions of customers in the last mile transportation segment. Spurious parts not only damage the vehicle but can also create a substantial impact physically and financially on the lives of the end consumer.

• The enforcement team consisting of the Indian Police and Greaves Cotton's legal team has been working closely and identifying both manufacturing units and selling outlets and locations of counterfeit spares across major cities and trade hubs in India. They have arrested Mr Bahavin Parav from M/S Lumesh Auto and Mr Kapoor from M/S RC Auto center. The spurious parts have been seized from M/S Lumesh Auto and M/S RC Auto center

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Fundamental Research Team

Name Designation Email id Contact No.

Sunder Sanmukhani Head-Fundamental Research sanmukhanis@choiceindia.com 022 - 6707 9910

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Aditi Damani Research intern 022- 67079916

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OUR TEAM

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