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  • Stock recommendation: Greaves Cotton Ltd – ACCUMULATE – TP Rs.156

    Publish date: August 16, 2018


    Result Update

    Greaves Cotton (GCL) reported good numbers, a tad below our estimates. Commodity cost pressures and employee costs erased margin gains arising out of healthy revenue growth.


    Key Highlights

    • After multiple quarters of sedate or no growth, this was the third consecutive quarter of double digit topline growth.
    • The company's foray into retailing of spare parts has now gained momentum. It has 74 outlets now, servicing 6000 vehicles per month.

    Valuation & Outlook

    • GCL is currently trading at 16x and 14x FY18 and FY19 earnings respectively. We recommend "Accumulate" (BUY earlier) with a revised target price of Rs 156 (Rs 153 earlier), valuing the stock at 15x FY20 earnings. Although, valuation is at a discount to engineering peer stocks, it is mainly due to the tepid profit growth in the past. We would take a favourable view of the stock at lower price points as the dividend yield of the stock is attractive.

          

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