CMP 75.30

Target Price 90.00

ISIN: INE224A01026

MARCH 27th

2014

GREAVES COTTON LIMITED Result Update: Q3 FY14

BUYBUYBUYBUY

Index Details

Stock Data

Sector Industrial Machinery

BSE Code 501455

Face Value 2.00

52wk. High / Low (Rs.) 77.00/53.00

Volume (2wk. Avg.) 71000

Market Cap (Rs. in mn.) 18388.26

Annual Estimated Results (A*: Actual / E*: Estimated)

YEARS FY13A FY14E FY15E

Net Sales 18732.90 17494.70 18894.28

EBITDA 2402.30 2344.84 2644.57

Net Profit 1379.60 1021.75 1504.50

EPS 5.65 4.18 6.16

P/E 13.33 18.00 12.22

Shareholding Pattern (%)

1 Year Comparative Graph

GREAVES COTTON LTD S&P BSE SENSEX

SYNOPSIS

Greaves Cotton Limited is one of the leading

engineering companies in India with core

competencies in diesel/petrol engines, gensets and

construction equipment.

For the quarter ended Q3 FY14, net profit jumps to

Rs. 377.50 mn against Rs. 343.60 mn in Q3 FY13, an

increase of 9.87%.

Revenue for the quarter stood at Rs. 4234.0 mn as

against Rs. 5157.8 mn for the corresponding

quarter last year.

Profit before interest, depreciation and tax is Rs.

541.30 mn as against Rs. 643.70 mn in the

corresponding period of the previous year.

Greaves Cotton has declared a second interim

dividend of Rs. 0.40 per equity share of Rs. 2 each

for the financial year 2013-14.

Greaves Construction Equipment Business has

launched the first of its 37 metre 3 axle truck

mounted boom pump - GCP3709Z.

The Company has launched its fuel efficient, smartly

designed auxiliary power solutions, compliant with

latest emission norms.

The Company has been focusing on building its

products based on technology and value. The new

265 cc quadricycle petrol engine is developed on an

all-new platform.

Greaves Automotive Engines Business has added

TVS Motor Company to its list of customers, for

supply of single cylinder diesel engine (G435) for

the TVS King DS (diesel variant).

PEER GROUPS CMP MARKET CAP EPS P/E (X) P/BV(X) DIVIDEND

Company Name (Rs.) Rs. in mn. (Rs.) Ratio Ratio (%)

Greaves Cotton Ltd 75.30 18388.26 5.65 13.33 2.48 80.00

Cummins India Ltd 576.45 159791.90 23.33 24.71 6.70 550.00

Elecon Engineering Ltd 31.35 3415.10 2.54 12.34 0.72 50.00

Kirloskar Brothers Ltd 165.75 13153.70 7.12 23.28 1.69 100.00

Recommendation & Analysis - ‘BUY’

Greaves Cotton Limited, one of India's leading engineering companies reported revenue at Rs. 4234.0 mn for the

quarter ended December 31, 2013 as against Rs. 5157.8 mn for the corresponding quarter last year. EBITDA was

Rs. 541.3 mn as for the quarter as against Rs. 643.7 mn, for the same period last year. Profit After Tax (PAT)

jumps to Rs. 377.5 mn against Rs. 343.6 mn in the corresponding quarter ending of previous year, an increase of

9.87%.

During the quarter, sales have been affected by the overall dismal business environment. The company has

stepped up its investment in Research & Development activities to develop new products. The construction

business launched the 37 metre Boom Pump to plug in the product gap and refurbish the product portfolio along

with the newly introduced concrete S valves. International business has also been able to widen its global

footprint in South East Asia, East Africa and Middle East markets and has set up a distribution and aftermarket

network to service customers in these regions. Coupled with these, Company has been driving initiatives which

are focused on cost optimization and human resource competency development. The Company has been focusing

on building its products based on technology and value. The new 265 cc quadricycle petrol engine is developed

on an all-new platform. Despite a tough and challenging business scenario plagued with weakened business

sentiments, Greaves has maintained its top line, and continues to focus on key initiatives critical to its growth

strategy. Hence, we recommend ‘BUY’ for ‘Greaves Cotton Ltd’ with a target price of Rs. 90.00 for medium to

long term investment.

QUARTERLY HIGHLIGHTS (STANDALONE)

Results updates- Q3 FY14,

Greaves Cotton Ltd, established in 1859, is one of

India's leading and well-diversified Engg companies

& it manufactures a wide range of industrial

products to meet the requirement of core sectors in

India and abroad, reported its financial results for

the quarter ended 31st Dec, 2013.

Months Dec-13 Dec-12 % Change

Net Sales 4234.00 5157.80 (17.91)

PAT 377.50 343.60 9.87

EPS 1.55 1.41 9.87

EBITDA 541.30 643.70 (15.91)

The company’s net profit jumps to Rs. 377.50 million against Rs. 343.60 million in the corresponding quarter

ending of previous year, an increase of 9.87%. Revenue for the quarter declines by 17.91% to Rs. 4234.00 million

from Rs. 5157.80 million, when compared with the prior year period. Reported earnings per share of the

company stood at Rs. 1.55 a share during the quarter, registering 9.87% increase over previous year period.

Profit before interest, depreciation and tax is Rs. 541.30 millions as against Rs. 643.70 millions in the

corresponding period of the previous year.

Break up of Expenditure

Break up of Expenditure

Value in Rs. Million

Q3 FY14 Q3 FY13

Cost of Material Consumed 2856.40 3531.70

Purchase of Stock in Trade 83.70 94.00

Employee Benefit Expenses 419.90 375.90

Depreciation 111.30 98.60

Other Expenses 452.30 428.80

Segment Revenue

Latest Updates

• Greaves Cotton Ltd has declared a second interim dividend of Rs. 0.40 per equity share of Rs. 2 each for the

financial year 2013-14. The total interim dividend for the financial year 2013-14 including the first interim

dividend of Rs. 0.30 will be Rs. 0.70 per equity share of Rs. 2 each.

• Greaves Construction Equipment Business, part of Greaves Cotton Limited, has launched the first of its 37

metre 3 axle truck mounted boom pump - GCP3709Z . The 4 arm Z fold type boom offers increased flexibility

and maneuverability in areas where space is a constraint.

• Greaves Cotton Ltd has launched its fuel efficient, smartly designed auxiliary power solutions, compliant with

latest emission norms.

• Greaves Automotive Engines Business, part of Greaves Cotton has added TVS Motor Company to its list of

customers, for supply of single cylinder diesel engine (G435) for the TVS King DS (diesel variant).

COMPANY PROFILE

Greaves Cotton Limited, a Rs. 1,900 crore, multi-product, multi-locational company is one of the leading

engineering companies in India with core competencies in diesel / petrol engines, gensets and construction

equipment. The Company sustains its leadership through 10 manufacturing units which produce world class

products backed by comprehensive marketing and service / parts network throughout the country. In the recent

years, Greaves has made rapid strides towards globalization. The Company exports several of its products to

various countries.

The Company's manufacturing plants are equipped with state-of-the-art production facilities, backed by in house

R&D. Greaves Cotton Limited is a certified by ISO/TS 16949-2002.

Business Divisions:

• Farm Equipment

Greaves manufactures lightweight petrol, diesel / kerosene engines in the 1-4 HP range and portable eco-

friendly silent Gensets in the 1.4 KVA range at its ISO 9001 certified Petrol Engines Unit, in Chennai. The

engines are most popular for agriculture applications like power sprayer, pump sets and power reapers.

Greaves is the trusted name across rural India for lightweight, portable pump sets. Greaves has stepped up its

contribution to Indian agriculture with the launch of Greaves Power Tiller, manufactured by a leading

manufacturer in China and customized to suit Indian conditions.

• Automotive Division

Highly fuel efficient, Greaves lightweight diesel / gasoline engines are ideal for Automotive Engines

applications like 3-wheelers and small 4-wheeled commercial vehicles. These engines with high power-to-

weight ratio are also used extensively for portable agricultural pump sets, gensets, small boats, construction

equipment and host of other applications. Available in a range of 4-11 HP models, Greaves light diesel

engines are manufactured at ISO 9001 certified Units in Aurangabad and Ranipet.

• Auxiliary Power

Greaves leads the field in the manufacture of Diesel Engines (10-1000 HP) used for diesel generating sets,

barges, pilot launches, compressors, construction equipment, cranes, forklifts, etc. Greaves also manufactures

Dual Fuel Engines / Gensets (30 KVA to 400 KVA) and Gas Engines / Gensets (125 KVA to 300 KVA)

operating on natural gas. Manufactured at ISO 9001-2000 certified Unit at Chinchwad, Pune, and quality is

assured. Among the first few foundries with ISO-9001 certificate of approval Greaves Limited Foundry

Unit is one of the pioneers in the manufacture of Quality Castings in India having begun operations in 1955,

to supply ductile iron casting for Greaves Engines.

• Construction Equipment

To meet the challenges of construction industry, Greaves manufactures wide range of Compaction and

Concreting equipment. The complete range of concrete equipment like Transit Mixers, Concrete Pumps,

Batching Plants, etc. are manufactured at the Company’s ISO 9001 certified Plants at Gummidipoondi (Tamil

Nadu). Greaves also manufactures the complete range of compaction equipment like Vibratory Soil

Compactors, Heavy Tandem Rollers, Light tandem Rollers at Gummidipoondi.

Greaves construction equipment is mainly used for construction of roads, bridges, buildings, ready mix

concrete applications, etc. Greaves caters to the service and spare parts requirement of customers through

their large network of qualified and trained service engineers located a various branches and dealerships

• Industrial Engines

Wherever an engine is required to power equipment that is needed to pump, dig, pull, push, carry or move,

Greaves can tailor a power pack solution exactly to the need. Greaves offers a wide range of versatile, fuel-

efficient engines in the range of 1-700 HP for a host of applications in:

� Marine.

� Agricultural Equipment.

� Fire fighting pump sets.

� Mining & Construction.

� Material Handling (Cranes, Forklifts).

� Rail Cars, Road Sweepers etc.

Subsidiary Companies

� Greaves Leasing Finance Limited (GLFL).

� Greaves Auto Limited (GAL).

� Dee Greaves Limited (DGL)

� Greaves Cotton Netherlands B.V. (GCN), Netherlands

� Greaves Farymann Diesel GmbH (GFD), Germany

� Ascot International FZC (Ascot), United Arab Emirates

FINANCIAL HIGHLIGHT (STANDALONE) (A*- Actual, E* -Estimations & Rs. In Millions)

Balance Sheet as at March31, 2012 -2015E

FY12A FY13A FY14E FY15E

SOURCES OF FUNDS

Shareholder's Funds

Share Capital 488.40 488.40 488.40 488.40

Reserves and Surplus 6005.30 6932.00 7625.20 8540.22

1. Sub Total - Net worth 6493.70 7420.40 8113.60 9028.62

Non Current Liabilities 1.70 0.40 320.50 333.32

Long term borrowings 299.60 347.20 345.46 362.74

Deferred Tax Liabilities 30.50 37.80 41.58 43.66

Other Long term Liabilities 104.80 131.70 173.84 205.14

Long Term Provisions 436.60 517.10 881.39 944.85

2. Sub Total - Non Current Liabilities

Current Liabilities

Short Term Borrowings 200.00 22.00 0.00 0.00

Trade Payables 1931.60 2329.20 2515.54 2691.62

Other Current Liabilities 809.70 630.50 870.09 974.50

Short Term Provisions 1058.50 883.40 521.21 427.39

3. Sub Total - Current Liabilities 3999.80 3865.10 3906.83 4093.51

Total Liabilities (1+2+3) 10930.10 11802.60 12901.82 14066.99

APPLICATION OF FUNDS

Non-Current Assets

Fixed Assets

Tangible assets 3209.40 3602.90 3819.07 4010.03

Intangible assets 50.10 77.50 88.35 97.19

Capital Work in Progress 167.80 53.30 57.03 59.88

Intangible assets under development 35.60 26.90 28.51 29.65

a) Sub Total - Fixed Assets 3462.90 3760.60 3992.97 4196.75

b) Non-current investments 528.80 253.50 261.11 268.94

c) Long Term loans and advances 231.50 211.50 298.22 345.93

d) Other Non-Current Assets 13.70 14.10 17.20 19.78

1. Sub Total - Non Current Assets 4236.90 4239.70 4569.49 4831.40

Current Assets

Current Investment 585.40 685.40 520.90 546.95

Inventories 1699.70 1609.90 2025.47 2288.78

Trade receivables 2572.90 3750.80 4200.90 4578.98

Cash and Bank Balances 702.50 413.50 632.66 820.59

Short-terms loans & advances 1127.80 1101.00 946.86 994.20

Other current assets 4.90 2.30 5.54 6.09

2. Sub Total - Current Assets 6693.20 7562.90 8332.33 9235.59

Total Assets (1+2) 10930.10 11802.60 12901.82 14066.99

Annual Profit & Loss Statement for the period of 2012 to 2015E

Value(Rs.in.mn) FY12A FY13A FY14E FY15E

Description 12m 12m 12m 12m

Net Sales 17534.40 18732.90 17494.70 18894.28

Other Income 59.80 155.50 266.78 282.79

Total Income 17594.20 18888.40 17761.48 19177.06

Expenditure -14736.30 -16486.10 -15416.64 -16532.49

Operating Profit 2857.90 2402.30 2344.84 2644.57

Interest -34.80 -11.20 -37.48 -45.35

Gross profit 2823.10 2391.10 2307.36 2599.22

Depreciation -317.30 -389.60 -437.90 -481.69

Exceptional Items 0.00 0.00 -413.90 0.00

Profit Before Tax 2505.80 2001.50 1455.56 2117.53

Tax -650.90 -621.90 -433.81 -613.02

Net Profit 1854.90 1379.60 1021.75 1504.50

Equity capital 488.40 488.40 488.40 488.40

Reserves 6005.30 6932.00 7625.20 8540.22

Face value 2.00 2.00 2.00 2.00

EPS 7.60 5.65 4.18 6.16

Quarterly Profit & Loss Statement for the period of 30th June, 2013 to 31st March, 2014E

Value(Rs.in.mn) 30-Jun-13 30-Sep-13 31-Dec-13 31-Mar-14E

Description 3m 3m 3m 3m

Net sales 4122.80 4480.50 4234.00 4657.40

Other income 60.20 64.20 67.80 74.58

Total Income 4183.00 4544.70 4301.80 4731.98

Expenditure -3628.00 -3976.20 -3760.50 -4051.94

Operating profit 555.00 568.50 541.30 680.04

Interest -5.60 -12.10 -9.20 -10.58

Gross profit 549.40 556.40 532.10 669.46

Depreciation -102.30 -104.10 -111.30 -120.20

Exceptional Items 0.00 -400.50 -13.40 0.00

Profit Before Tax 447.10 51.80 407.40 549.26

Tax -129.50 -131.60 -29.90 -142.81

Net Profit 317.60 -79.80 377.50 406.45

Equity capital 488.40 488.40 488.40 488.40

Face value 2.00 2.00 2.00 2.00

EPS 1.30 -0.33 1.55 1.66

Ratio Analysis

Particulars FY12A FY13A FY14E FY15E

EPS (Rs.) 7.60 5.65 4.18 6.16

EBITDA Margin (%) 16.30% 12.82% 13.40% 14.00%

PBT Margin (%) 14.29% 10.68% 8.32% 11.21%

PAT Margin (%) 10.58% 7.36% 5.84% 7.96%

P/E Ratio (x) 9.91 13.33 18.00 12.22

ROE (%) 28.56% 18.59% 12.59% 16.66%

ROCE (%) 47.42% 37.51% 32.99% 33.39%

Debt Equity Ratio 0.03 0.00 0.04 0.04

EV/EBITDA (x) 6.26 7.49 7.71 6.77

Book Value (Rs.) 26.59 30.39 33.23 36.97

P/BV 2.83 2.48 2.27 2.04

Charts

OUTLOOK AND CONCLUSION

� At the current market price of Rs.75.30, the stock P/E ratio is estimated 18.00 x FY14E and 12.22 x FY15E

respectively.

� Earning per share (EPS) of the company for the earnings for FY14E and FY15E is seen at Rs. 4.18 and Rs. 6.16

respectively.

� On the basis of EV/EBITDA, the stock trades at 7.71 x for FY14E and 6.77 x for FY15E.

� Price to Book Value of the stock is expected to be at 2.27 x and 2.04 x respectively for FY14E and FY15E.

� We recommend ‘BUY’ in this particular scrip with a target price of Rs.90.00 for Medium to Long term

investment.

INDUSTRY OVERVIEW

AUTOMOTIVE ENGINES

The Indian automobile industry recorded the decade’s lowest growth rate on the back of factors such as

shrinking demand, a sluggish economy, diffident sentiments and high interest rates. The buoyancy in the

domestic Commercial Vehicle (CV) industry too has been on a wane after experiencing a volume growth of over

30% during FY 2009-10 and FY 2010-11. Slowing industrial activity, weakening investment sentiment and

subdued freight rates continued to pose headwinds for fleet operators across the domestic CV industry resulting

in shrinking numbers.

The 3 wheeler diesel segment reported a 4% year-on-year volume growth in FY 2012-13, mainly led by a healthy

8% year-on-year growth in domestic passenger carriers. Sales of domestic 3 wheeler goods carrier continued to

be impacted by high financing costs and weak retail sales resulting in sales contracting by 5%.

AUXILIARY POWER

The power capacity addition on an all India basis during FY13 stood at 20,620 MW (excluding renewal energy

based), of which 91% was coal-based. However, the overall power deficits remained significant across the

country as is evident from the peak deficit of 9% in FY13 with some states, especially North and South, having

significantly higher level of peak deficits between 10% and 25%. As against the energy demand growth at 6-8%

per annum, power shortages have been continuing on account of factors such as shortfall in capacity addition,

increasing fuel shortages affecting the energy availability, lack of adequate transmission capacity in southern

region, as well as, the financial constraints in obtaining costlier sources of power by many state owned utilities.

The Auxiliary Power industry also continued to be challenged by the intense competition and resultant price

wars to of-load stock and improve plant utilisation.

FARM EQUIPMENT

The farm sector accounts for about 15% of India’s nearly $2 trillion economy. The 11th Five Year Plan (2007-12)

witnessed an average annual growth of 3.6% in the gross domestic product (GDP) from agriculture and allied

sectors. The growth target for agriculture in the 12th Five Year Plan is estimated to be 4%. Indian agriculture is

benefiting significantly from rising external demand and the sector's wider participation in the global economy.

The Farm Equipment Business believes products that enhance farm productivity, especially Diesel and Electrical

Pumpsets, Mini Tractors and Light Agricultural Equipment, will attract demand as the trend for mechanisation

takes further roots in the country, subject to a normal monsoon.

INDUSTRIAL ENGINES

The industrial engine market is diverse as these engines are used in various different stationary and mobile

equipments. Industrial engines are used in construction equipment for concreting and road making applications,

earthmoving, mining equipment, agriculture equipment, marine, ire lighting pumps and other pumps,

compressors and in railway applications, defence & power generation.

CONSTRUCTION EQUIPMENT BUSINESS

There is a direct correlation between the demand for construction equipment and growth in infrastructure

development. The dampened economic scenario with higher interest rates and slowdown in key sectors

impacted growth in the construction equipment space, including infrastructure development, mining, and real

estate. Other factors that led to slowdown in the progress of construction activity during the year included

stringent monetary conditions, policy inertia and stagnant infrastructure activities.

Construction equipment market was impacted by a slowdown in the infrastructure segment, the Company’s

Construction Equipment Business gained market share in the second half of FY13 through aggressive marketing

initiatives and the launch of new products. The Road Equipment business, in particular, witnessed marginal

improvement in the last few months of FY13 and this momentum is likely to be sustained.

Disclaimer:

This document prepared by our research analysts does not constitute an offer or solicitation for the purchase or sale

of any financial instrument or as an official confirmation of any transaction. The information contained herein is

from publicly available data or other sources believed to be reliable but do not represent that it is accurate or

complete and it should not be relied on as such. Firstcall India Equity Advisors Pvt. Ltd. or any of it’s affiliates shall

not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the

information contained in this report. This document is provide for assistance only and is not intended to be and must

not alone be taken as the basis for an investment decision.

Firstcall India Equity Research: Email – info@firstcallindia.com

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