The stock market can be unpredictable, and sometimes even the best-performing stocks can take a turn for the worse, leaving investors with significant losses. One such stock, Greaves Cotton, a diversified engineering firm, experienced a significant downturn after delivering multibagger return.
The company's shares witnessed an unprecedented rally between April 2020 and January 2022, soaring from ₹79.40 apiece to an all-time high of ₹258.90, delivering a staggering return of 226%. However, the stock has since gone through a complete turnaround, falling by approximately 52.44% to ₹122.70.
Greaves Cotton is engaged in the manufacturing of engines, engine applications, and trading of power tillers, spares related to engines, electric vehicles, and infrastructure equipment. The company has six manufacturing facilities across India, which include the recently inaugurated largest EV manufacturing facility and an experience centre at Ranipet, Tamil Nadu.
Greaves divides its whole business into three key buckets, which include engineering, electric mobility, and retail. The engineering segment includes both automotive and non-automotive engine businesses and currently contributes around 35% to total revenues.
The electric mobility business, which involves the production and sale of electric two- and three-wheelers, accounts for around 40% of total revenues. Under the retail segment, Greaves offers spare parts sales and services to its end customers, and this segment contributes around 25% to the company's total revenues.
Despite the stock being an underperformer, domestic brokerage firm Sharekhan has remained optimistic about the company's long-term prospects. It believes that the company is strategically building up a new business (EVs & retail) for growth and continuing to strengthen its legacy business via the organic route.
During their visit to the electric two-wheeler manufacturing plant at Ranipet (Chennai), the brokerage noted some positive developments.
The brokerage stated that the plant has achieved a manufacturing capacity of five lakh units in two shifts, which can be expanded to 10 lakh units. It was noted that the plant has been procuring most of the raw materials from local markets, except battery cells and semiconductors.
The plant has already rolled out 125,000 units since its inception and is located close to supplier ecosystems. Over the period, the company undertook various steps to improve efficiency in the plants, and that has resulted in a sharp reduction in production lapses since Greaves acquired Ampere, said the brokerage.
The management claims that it has been registering best-in-class gross margins in the electric mobility business and operating performance would improve substantially once volumes would ramp up due to operating leverage benefit.
Currently, EV penetration in India is around 5% and has large room to expand due to cost-effective last-mile transport solution offerings. Besides electric two-wheelers, the company has been steadily building up its electric three-wheeler business in steps, according to Sharekhan.
In 9MFY23, the electric mobility division reported 106% growth in volumes to 76,660 units and reported 160% growth in revenue to ₹741 crore. With a rise in volumes and an improved product mix, the electric mobility division has reported improvement in operating performance, as operating losses came down sharply in 9MFY23.
It has also been equally looking for sustainable growth in its engineering segment, where it has been catering to the automobile engine and industrial engine segments, the brokerage added.
The company has been in the process of completing the acquisition of Excel Control Linkage, which is one of the largest players in mechanical and electronic motion control systems and manufactures push-pull cables, levers & sensors etc.
In light of all growth factors, Sharekhan has retained its "buy" call on the stock with an unchanged target price of ₹183 apiece, which reflects an upside of 50% from the stock's current market price.
04 analysts polled by MintGenie on average have a 'strong buy' call on the stock.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie.