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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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