Greaves Cotton

GCL, focused player in engine & infrastructure equipments, has reported good set of numbers for quarter ending March 2007 (year end – June).

Net sales rose by 36.6% to Rs. 325.69 crore led by 31.6% increase in Engines sales of Rs. 255.1 crore. Sales of Infrastructure Equipments jumped up by 61.2% to Rs. 60.06 crore (Rs. 37.25 crore). OPM% declined slightly to 14.7% (15.3%) due to increase in raw material cost to 70.7% (69%). PBIT% of engine division dipped to 16% (17.4%) because of rising input costs & new product introductions. Infrastructure Equipment PBIT% improved noticeably to 16.3% (14.3%). After accounting for sharp increase in interest cost of Rs. 4.14 crore (Rs. 1.4 crore), to some extent off set by higher other income of Rs. 2.6 crore (Rs. 84 lakh), PBT (before extra ordinary items) rose by 30.7% to Rs. 42.1 crore (Rs. 32.22 crore). In Q3 FY 2006, there was net extra ordinary income of Rs. 3.68 crore. No such income was there in Q3 FY 2007. However, drastic reduction in average tax rate to 19.5% (33.9%) led to 42.8% surge in PAT of Rs. 33.9 crore.
Company is operating in both engines segment (4.4 to 11.0 HP; both diesel & petrol) and in medium range (10-600 HP) engine segment. In infrastructure equipment business, company makes compactors, concrete mixers and also batching machines. Largest customer of engine division (accounting for 78-80% of sales as well as PBIT) is Piaggio, accounting for 25-30% of aggregate revenues. Piaggio is setting up 2 lakh diesel engines production facility thru its local arm in India. This facility is likely to commence operations by early 2010, which could lead to slowdown of orders from Piaggio.
To offset this setback, company is focusing on options like
© Increasing large engine sales, adding new OEMs for light engines and expanding geographically
© Diversifying business model by enhancing infrastructure equipment business. Greaves Cotton is riding on fast growing infrastructure equipment demand on back of high level of construction activity in the roads and real estate segment
© Going in for inorganic growth. In Feb 2007, GCL acquired Bukh-Farymann Diesel, (BFD) Germany for Euto 4.24 million. This acquisition would enable company to venture into non-auto applications and enter newer geographies. Souring of BFD’s component requirements from India at lower cost will improve sales and profitability of German subsidiary.
Greaves will be spending Rs. 150 crore in FY 2007 (incl. above acquisition) for expanding capacity of engines & transit mixers and for development of new products.
FY 2007 expected EPS of Rs. 25/- and FY 2008 expected EPS of Rs. 30/-. Considering engine expansion plans, surging revenues from infrastructure division and synergies derived from BFD’s acquisition.

Source :Geojit Research desk