Greaves Cotton Ltd – Q4FY10 Result Update

Greaves Cotton Ltd – Q4FY10 Result Update (Year ending Jun)

Result Highlight

Ø                    For Q4FY10 Greaves Cotton Ltd (GCL) revenue grew by 45% on yearly basis to INR 3,477Mn. Judicious product mix and cost management (as a % of sales) led to operating profit margin expansion by 249bps. With operating profit margin at 13.1%, the EBITDA stood at INR 454Mn for the quarter under review, higher by 79% on YoY.

Ø                    Moderate rise in depreciation (INR 68Mn, +7% YoY), lower interest out go (INR 27Mn, -39% YoY) and higher other income at INR 38Mn (+28% YoY) led to rise in net profit to INR 278Mn, up 110% on YoY.

Ø                    Net profit margin at 8%, corollary to better cost management and lower interest out go led to margin improvement by 245bps

Outlook and Valuations

With robust growth already witnessed in Auto sector, buoyancy whereof is expected to continue going forward, augurs well for the future prospects of the company for a) strong working capital management, b) optimum product mix and c) least dependency on borrowed fund. GCL has accordingly firmed up plan to build an automotive engine manufacturing plant in Aurangabad for ~INR 1bn, to meet growing demand for such engines. For FY10 consolidated earning per share of INR 24, GCL trades at 15.9x and ~14x our back of the envelop calculation for FY11e. Accumulate for price objective of INR 430/- over next 9-12 months.