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Greaves Cotton: Slow and steady - Views on News from Equitymaster
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Greaves Cotton: Slow and steady
Jul 28, 2011

Greaves Cotton has announced the first quarter results of financial year 2011-2012 (1QFY12). The company has reported around 15.6% YoY and 25.9% YoY growth in sales and net profits respectively.

Performance summary
  • Sales grow by 15.6% YoY during 1QFY12, led by strong performance from both engines and infrastructure equipment divisions.
  • Operating profits increase 25.4% YoY during the quarter. Operating margins increase to 14.2% due to fall in staff cost as a percentage of sales.
  • Net profits increase 25.9% YoY during the quarter.
  • The new auto manufacturing unit at Aurangabad with a production capacity of 80,000 units per annum is expected to go on stream shortly.

Standalone performance snapshot
(Rs m) 1QFY11 1QFY12 Change
Income from operations 3,477 4,019 15.6%
Expenditure 3,023 3,449 14.1%
Operating profit (EBDITA) 454 570 25.4%
Operating profit margin (%) 13.1% 14.2%  
Other income 38 18 -53.8%
Interest 27 12 -55.2%
Depreciation 68 73 6.1%
Profit before tax 397 503 26.7%
Tax 119 153 28.5%
Profit after tax/(loss) 278 350 25.9%
Net profit margin (%) 8.0% 8.7%  
No. of shares (m)   244.2  
Basic earnings per share (Rs)   1.43  
P/E ratio (x) *   13  
*On a trailing 12 month basis

What has driven performance in 1QFY12?
  • The 15.6% YoY growth in sales during 1QFY12 was largely a result of strong performance from both engines and infrastructure equipment divisions. Sales from the engines division increased 14.4% YoY. Infrastructure equipment division also recorded a healthy growth of 28.9% YoY during the quarter.

  • Margins from the engines division were marginally higher at 17.6% in 1QFY12 compared to 17.1% in 1QFY11. 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)
      1QFY11 1QFY12 Change
    Engines
    Revenue (Rs m) 2,956 3,382 14.4%
    % share 85.0% 84.2%  
    PBIT margin 17.1% 17.6%  
    Infrastructure Equipments
    Revenue (Rs m) 377 486 28.9%
    % share 10.8% 12.1%  
    PBIT margin -3.0% 0.6%  
    Others
    Revenue (Rs m) 144 150 4.3%
    % share 4.1% 3.7%  
    PBIT margin 26.6% 18.8%  
    Total
    Revenue (Rs m) 3,477 4,019 15.6%
    PBIT margin 15.3% 15.6%  

  • Greaves Cotton's overall operating margins increased to 14.2% during the quarter. This was mainly due to decline in staff cost as a percentage of sales. The staff cost (as a percentage of sales) declined from 8.5% in 1QFY11 to 7.1% in 1QFY12.

  • Net profits increase 25.9% YoY during the quarter due to strong performance at the operating level and fall in interest expenses.

What to expect?
At the current price of Rs 89, the stock is trading at a multiple of 10.7 times our estimated FY14 earnings. We maintain our positive view on the stock from the medium term perspective.

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