Maintain Buy, Target price upgraded to Rs.160
BUY
CMP: Rs 133 Target Price: Rs 160
Greaves Cotton Limited (GCL) reported results which were marginally below our expectations. Engines segment reported strong operating performance primarily driven by decline in the raw material cost. Though infrastructure segment reported PBIT loss, we believe improvement in the road and real estate segment (two key target sectors for the company) will drive growth over the next few quarters. During the quarter the company reported revenue of Rs.2.6bn, decline of 18.6%. Net profit declined by 35% to Rs.141mn.
During the quarter the company also started supplying twin cylinder engines to Piaggio for its newly launched commercial vehicle. We believe the twin cylinder engine and single cylinder engine supplies to Tata Motors that is expected to start from December 2009 would be volume growth driver for the company. With improvement in infrastructure activity, especially road construction and real estate we expect infrastructure segment to bounce back sharply. We expect the company to report revenue of Rs.12.7bn and net profit of Rs.629.8mn in FY10. The stock trades at 10.5x FY09. We are maintaining our Buy rating on the stock with revised target price of Rs.160 (12.5x FY10 earnings).
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