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Greaves Cotton Ltd – In Midst Of A Transformation

Company Name – Greaves Cotton Limited (Greaves Cotton)

Current Share Price – INR 133 (February 21, 2023)

Market Cap – INR 3,084 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 support via 700+ 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 13% market share in the e-2W segment in CY22, 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 ~80,000 units of EV two-wheeler in CY22 and is the number 4 player in the market, compared to market leader Ola Electric, which sold 108,000 units during the same period.

Electric 2-W sales fell in Q3FY23 to ~12,000 units vs ~18,000 units in Q3F22 as the government rolled out AIS 156 phase I norms for batteries to improve safety. Phase II of the norms is expected to be rolled out in April 2023.

Greaves Electric Mobility, a division of Greaves Cotton, sold ~ 4,800 E-3W in 9MFY23 vs ~7,600 during 9MFY22.

The government was providing subsidies for the development of electric vehicles. However, the ministry has received complaints regarding the misappropriation of subsidies by some manufacturers including the Company. So, the government has stopped giving subsidies pending investigation. The amount of subsidy receivable by the Company as of December 31, 2022, is INR 225 cr.

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 has constructed a new electric vehicle manufacturing factory in Ranipet, Tamil Nadu, at an anticipated investment of INR 700 crore. Abdul Latif Jameel has committed to invest up to USD 220 million in Greaves Electric Mobility. Apart from building its online platform, the firm has cooperated with major e-commerce platforms such as Paytm, Flipkart, and Amazon to attract young buyers.

Segment-wise revenue mix in Q3FY23 was:

  • Engines - 44%

  • Aftermarket - 27%

  • E-Mobility - 27%

Greaves Cotton has a net cash position of ~INR 1,200 cr.

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 the 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 1,710 crore in FY22, down from INR 1,911 crore in FY20. EBITDA margin fell in FY22 with losses increasing on the net profit level

  • Company operations recovered in H1FY23 but the E-Mobility got impacted in Q3FY23 leading to lower sales and losses

  • Company had poor cash conversion (CFO/EBITDA) in FY22 due to "other WC item"

  • ROCE/ROE is -1%/-5% in FY22

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, to become a market leader. Greaves Cotton will be affected by any swing in 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 an EV/EBITDA (TTM) ratio of ~11x. The Company peers Cummins India, Kirloskar Oil, and Swaraj Engines trade at EV/EBITDA (TTM) of 29x, 9x, 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.

Company 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 post-March 2020, therefore, it is worth investing in only after a significant correction or turnaround in the business.

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) stakes in the Company have fallen from ~30% as of March 2019 to ~9% as of December 2022 – this doesn’t augur well for long term


About the Author

I write about the stock market, cryptocurrency, and blockchain. I have a 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 in the 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 purposes and is not to be construed as 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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