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Greaves Cotton: Growth momentum continues - Views on News from Equitymaster

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Greaves Cotton: Growth momentum continues
May 2, 2011

Greaves Cotton has announced the third quarter results of financial year 2010-2011 (3QFY11). The company has reported around 26.5% YoY and 38.8% YoY growth in sales and net profits respectively.

Performance summary
  • Sales grow by 26.5% YoY during 3QFY11, led by strong performance from both engines and infrastructure equipment divisions.
  • Operating profits increase 14.1% YoY during the quarter. However, operating margins decline due to increase in other expenditure as a percentage of sales.
  • Net profits increase 38.8% YoY during the quarter.
  • The company paid a dividend of Rs 0.7 per share during the year*.


Standalone performance snapshot
(Rs m) 3QFY10 3QFY11 Change 9MFY10 9MFY11* Change
Income from operations  3,580 4,529 26.5% 9,995 12,505 25.1%
Expenditure  2,996 3,862 28.9% 8,385 10,527 25.5%
Operating profit (EBDITA) 584 667 14.1% 1,611 1,978 22.8%
Operating profit margin (%) 16.3% 14.7%   16.1% 15.8%  
Other income 15 98 555.3% 31 141 360.1%
Interest 30 24 -20.4% 102 72 -29.3%
Depreciation 66 72 8.8% 202 210 3.9%
Profit before tax 503 669 33.1% 1,337 1,837 37.4%
Tax 167 202 21.5% 435 564 29.6%
Profit after tax/(loss) 336 467 38.8% 902 1,273 41.1%
Net profit margin (%) 9.4% 10.3%   9.0% 10.2%  
No. of shares (m)         244.2  
Basic earnings per share (Rs)          6.35  
P/E ratio (x) **         14.3  
*9MFY11 is effectively a year end result for the company as it has decided to change its fiscal year end from June to March.
* On trailing 12 month basis

What has driven performance in 3QFY11?
  • The 26.5% YoY growth in sales during 3QFY11 was largely a result of strong performance from both engines and infrastructure equipment divisions. Sales from the engines division increased 24.8% YoY. Infrastructure equipment division also recorded a healthy growth of 47.5% YoY during the quarter. Margins from the engines division were marginally lower on account of higher raw material prices. Margin performance from the infrastructure equipment division was particularly encouraging with the division recording a profit as compared to a loss in corresponding quarter previous year.

    Segment-wise performance (Standalone)
      3QFY10 3QFY11 Change 9MFY10 9MFY11 Change
    Engines
    Revenue (Rs m)  2,999  3,744 24.8%  8,485 10,435 23.0%
    % share  83.8% 82.7%   84.9% 83.5%  
    PBIT margin 19.6% 18.4%   19.6% 19.1%  
    Infrastructure Equipments
    Revenue (Rs m) 442 652 47.5%  1,092 1,564 43.2%
    % share  12.3% 14.4%   10.9% 12.5%  
    PBIT margin -2.7% 0.9%   -5.1% 0.5%  
    Others 
    Revenue (Rs m) 139 133 -4.2% 418 506 20.9%
    % share 3.9% 2.9%   4.2% 4.0%  
    PBIT margin 31.3% 24.4%   26.5% 26.7%  
    Total
    Revenue (Rs m) 3,580 4,529 26.5% 9,995 12,505 25.1%
    PBIT margin 17.3% 16.0%   17.2% 17.1%  

  • Greaves Cotton's overall operating margins declined marginally during the quarter. This was mainly due to increase in other expenditure as a percentage of sales. The other expenditure as a percentage of sales increased from 7.7% in 3QFY10 to 8.1% in 3QFY11

  • Net profits increase 38.8% YoY during the quarter due to decline in interest cost and increase in other income.

What to expect?
At the current price of Rs 91, the stock is trading at a multiple of 12.4 times our estimated FY13 earnings. We maintain our positive view on the stock from the medium term perspective.

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