Greaves Cotton – In midst of a transformation

Updated: Mar 25

Company Name – Greaves Cotton Limited (Greaves Cotton)

Current Share Price – INR 234 (January 21, 2022)

Market Cap – INR 5,400 cr


1. What is interesting about the stock?

The engineering sector in India is the country's largest industrial sector. It accounts for 27% of all factories in the industrial sector and 63% of all international partnerships because the engineering business (electrical and non-electrical) creates a variety of items (durable machinery, equipment, and so on) that are utilized by a diverse range of end-users in industries such as agricultural, chemical, automobile, petrochemical, fertilizer, textile, mining, power, and defense. Increased investment in infrastructure and industrial output has propelled India's engineering sector to new heights in recent years. India has made great progress in strengthening its engineering industry as part of its goal to become a worldwide superpower. India exported engineering items worth INR 4.8 lakh crores in FY22 (through October), up from INR 3 lakh crores in FY21 (until October). The Engineering R&D market in India will grow from 2.7 lakh crores in FY19 to 3.1 lakh crores by FY22.

Greaves Cotton is a multi-faceted engineering firm. It is a prominent manufacturer of Cleantech Powertrain Solutions (CNG, Petrol, and Diesel Engines), Farm equipment, Generator sets, E-Mobility, and Aftermarket Spares and Services. Under several business segments, the firm now manufactures products and solutions with after sales supported via 500+ Greaves Retail Centers and 6,300+ smaller spare parts retail locations across the country. The firm produces over 4 lakh engines each year, or roughly one per minute in the mobility industry. In addition, it provides low-cost mobility solutions to the bulk of India's population, conveying over 1 crore passengers and 5 lakh tons of freight daily. Greaves Cotton has a market share of around 60%-65% in the 3W diesel engine segment. Greaves Cotton supplies engines to around 30 original equipment manufacturers (OEMs) in India, such as Piaggio Vehicle Limited, Mahindra & Mahindra Limited, Atul Auto etc.

Greaves Cotton is undergoing a metamorphosis from a 3W diesel engine producer to a last-mile mobility ecosystem. Greaves Cotton is well positioned to benefit from this industry growth, thanks to its acquisition of Ampere, which held approximately 14% market share in the e-2W segment in FY21 (FY20: 12%), new launches in the high-speed category large capacity expansion planned and expansion into the e-3W space through Bestway (acquisition in November 2021) and MLR Auto. Ampere sold 9,155 units of EV two-wheeler between Jan-Nov 2021, with an average monthly sales of 832 units and is number 5 player in the market, compared to market leader Hero Electric, which sold 40,318 units during the same period.

Greaves Electric Mobility, a division of Greaves Cotton, is off to a promising start in 2022. Greaves Electric Mobility sold over 10,000 E-3W in December 2021. According to Greaves Electric, Ampere scooters recorded an almost six-fold increase in revenue in December 2021 compared to the same month last year, while the E-3W company witnessed a 101% increase in volume.

With future development in mind, Greaves Cotton has reinforced the leadership team of the e-mobility business in order to expedite business expansion. It has hired Roy Kurian, the former marketing head of Yamaha India, to lead its EV business. To remain cost-competitive, the firm is constantly seeking to increase localization in its e-vehicles, with lithium-ion cells being the single major import. The business is constructing a new electric vehicle-manufacturing factory in Ranipet, Tamil Nadu, at an anticipated investment of INR 700 crore. Apart from building its own online platform, the firm has cooperated with major e-commerce platforms such as Paytm, Flipkart, and Amazon to attract young buyers.

Greaves Cotton is practically debt-free with a net cash position of 280 crore.

Nagesh Basavanhalli, Managing Director and Chief Executive Officer of Greaves Cotton, decided to relinquish his executive responsibilities in August 2020 due to personal and family commitments, and resumed the role in November 2020.

Company has had three CFOs in last 4 years:

· Neetu Kashiramka joined in Jan 2018 and resigned in April 2020

· Amit Mittal joined in April 2020 and resigned in November 2020

· Dalpat Jain joined in Jan 2021

2. Key Historical Financials

  • The COVID-19-led lockdowns had a substantial impact on business. The Company recorded consolidated revenue of INR 1,500 crore in FY21, down from INR 1,911 crore in FY20. In FY21, the loss after taxes was INR 19 crores, compared to a profit after tax of INR 129 crore in FY20. The loss was caused by revenue de-growth as a result of the COVID effect and certain extraordinary items.

  • Company operations have not recovered in Q2FY22 as it has made losses at EBITDA level too

  • Company had poor cash conversion (CFO/EBITDA) in FY19 and FY20

3. What is my view on company valuation?

  • Greaves Cotton aspires to grow its sales and service channels, as well as invest in technology and resources, with the goal of becoming a market leader. Greaves Cotton will be affected by any swing in the EV adoption. They are not yet mainstream, despite numerous new Indian firms entering various sectors of the EV value chain, considerable cash invested in the space, and large-scale execution efforts.

  • Currently, Greaves Cotton trades at EV/EBITDA (TTM) ratio of 67x. The Company peers Cummins India, Kirloskar Oil, and Swaraj Engines trade at PE (TTM) of 21x, 8x, and 10x respectively.

  • A protracted capex cycle, the unpredictability of expenditures (particularly electric), and low growth in net sales and EBITDA margins may dampen investor sentiment.

  • However, the corporation is attempting to become future-ready and has made inroads into a variety of new industries. Greaves Cotton’s non-auto sector has diversified itself into marine defense and construction machinery, due to which the business is going up.

Overall, the Company appears to be an interesting opportunity for long term and should be investigated further by investors. It has joined the EV area, which is hot right now, and as a result of the potential, demand for the stock has climbed and the price has risen, therefore, it is worth investing in only after a significant correction as company is trading at significant premium to its competitors.

4. What are the risks to the investment analysis?

  • Continuous investor interest in EV companies and ancillary providers can keep the stock price high for a long time. Strategic investor/Private Equity interest might cause the price to runaway

  • Institutional (FII and DII) stake in the Company have fallen from ~30% as of March 2019 to ~13% as of December 2021 – this doesn’t augur well for long term


About the Author

I write about the stock market, cryptocurrency, blockchain. I have Bachelor of Arts degree with more than 10 years of experience in finance and cryptocurrencies.


I have no stock, option or similar derivative position in any of the companies mentioned since last 30 days, and shall not initiate any such positions within the next 5 days. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from SocInvest). I have no business relationship with any company whose stock is mentioned in this article.

I am not a SEBI registered advisor. This article is purely for educational purpose and not to be construed as an investment advice. Please consult your financial advisor before acting on it.

I have used publicly available information while writing this article.


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