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  • Jun 2, 2022 - High Voltage EV Deal Sends Greaves Cotton Share Price Soaring. Key Points to Know

High Voltage EV Deal Sends Greaves Cotton Share Price Soaring. Key Points to Know

Jun 2, 2022

The skyrocketing prices of fuel has once again brought attention of investors to the long term growth potential of the electric vehicle (EV) segment.

And deals in the electric vehicle segment often raise eyebrows, given sky high valuations paid by investors in this segment.

In a deal announced today, a Gulf based investor Abdul Latif Jameel invested US$150 m (nearly Rs 11.6 bn) and proposed to acquire a 38.5% stake in the EV arm of Greaves Cotton - Greaves Electric Mobility (GEM).

GEM has a presence across EV segments including 2-wheeler EVs and 3-wheeler segment.

The above deal does raise eyebrows of investors. It values GEM at about 5.75 times consolidated electric mobility sales for the financial year ended March 2022.

The electric mobility segment of Greaves Cotton reported a consolidated segment loss of Rs 345 m for the financial year ended March 2022.

The leading global player in the electric vehicle segment, Tesla, trades at nearly 12.4 times trailing 12-months sales of US$62.2 bn, according to data sourced from global financial sites.

Electric Vehicles in India

In its latest presentation for fourth quarter of fiscal 2022, Greaves Cotton highlighted, in its electric mobility segment, the sale of more than 25,000 Magnus EX (electric scooters) across the country since its launch in October 2021.

This division also makes lithium-ion batteries.

Meanwhile, Tata Motors, in its latest results presentation, has also highlighted there are currently more than 645 electric buses running across the country at the end of financial year 2022. The company is entering allied areas in the EV segment.

The electric vehicles segment in India is at a very nascent stage and it's expected to grow manifold by 2030 in different segments including scooters, bikes, passenger cars, and commercial vehicles. And many opportunities are also emerging.

In such a scenario, the plans of the companies can help investors get some clarity. The plans of a company inform investors of the growth opportunities or the measures taken to strengthen the existing business. It also tells us about how the company will achieve the same.

An investor can then analyse the impact these new developments will have on the company's finances.

An important thing to note here is that the plans of any company are forward looking. It's up to investors to decide if the company will be able to meet its goals or not.

Since you're interested in EVs, check out the below video where co-head of Research at Equitymaster Tanushree Banerjee discusses how power sector stocks are profiting from EVs.

What picture do the valuations paint?

Greaves Cotton share price surged over 14% in early trade today after the deal was announced. In the afternoon session, the stock erased gains and was trading flat at Rs 163.

Last month, Greaves Cotton reported a consolidated net loss of Rs 353 m for fiscal 2022, nearly double from a year earlier, and investor interest for the stock has been muted.

However, with Tesla trading in the global markets with a PE of nearly 100 times earnings, the growth opportunities in Greaves Cotton looks attractive.

For more details about the company, you can have a look at Greaves Cotton factsheet and quarterly results on our website.

You can also compare Greaves Cotton with its peers.

Greaves Cotton vs Bharat Electronics

Greaves Cotton vs BHEL

Greaves Cotton vs Cummins India

Greaves Cotton vs Grindwell Norton

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...

Amriteshwar Mathur is a financial writer with over 20 years of experience. His partnership with Equitymaster involves writing on topics that are critical to understand if Indian investors are to realise their long term wealth building goals.

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