Greaves Cotton Ltd - 265.00 Rs

Established in 1859, Greaves Cotton Ltd (GCL) - part of B M Thapar group and well known as Greaves Ltd is one of India’s leading and well-diversified engineering companies. It manufactures a wide range of industrial products to meet the requirement of core sectors in India and abroad. GCL’s core competencies are production of diesel/petrol engines, gensets, agro equipment and construction equipment. Besides, it is also engaged in marketing high technology systems for marine, aviation and electronic applications. The business operations of the company are divided into four business groups strategically structured to ensure maximum focus on each business area and yet retain a unique synergy in the operations.

I. Engines - Power Generation Group (15%): This business group manufactures diesel engine (10 - 1000 HP) primarily for generating sets in the 15-550 KVA range, in both air-cooled and water-cooled versions and enjoys 15% market share in the domestic market. These engines also finds applications in barges, pilot launches, compressors, construction equipment, cranes, forklifts and various defense applications. Notably, GCL even manufactures dual fuel engines / gensets (30 KVA to 400 KVA) and gas engines / gensets (25 KVA to 300 KVA) operating on natural gas, bio-gas and producer gas.

II. Engines - Agro Equipment Group (10%): Under this group GCL manufactures light-weight, fuel-efficient, 2/4-stroke engines in 1 - 4HP range which are either marketed as complete pumpsets for the agricultural sector or as bare engines for multiple applications like water pumps, sprayers, construction equipments, allied agricultural machineries and more. With its plant in Chennai, this division boasts of making different types of petrol/kerosene run portable engines, sprayer engines, power tillers, portable gensets etc.

III. Engines – Automotive Group (55%): Engines including CNG/LPG variants manufactured by this division are for automotive, marine and industrial applications, with majority revenues accruing from the light-weight diesel engines used in 3-wheelers. Incidentally, GCL has been the sole supplier to Piaggio for more than a decade. To tap the emerging 4-wheeler SCV segment, company has indigenously developed the new generation twin cylinder engine with a suitable gearbox which has huge potential in coming years.

IV. Infrastructure Equipment Group (20%): GCL manufactures a wide range of products in both the road making & concreting equipment segments such as vibratory soil compactors, heavy/light tandem rollers, transit mixers, concrete pumps, batching plants. Secondly, company markets the entire range of CIFA and BOMAG tunneling equipments, which include shotcrete pumps, spritz system, tunnel forms, sprizzo, moulds, tampers, plate compactors, pneumatic tyre rollers, recyclers & refuge compactors amongst many other machines. It also deals in tunnel boring machine, roadheader, backhoes, stage loaders, lump breakers, conveyors, roof bolters, locomotives for mining, tunnelling and surface transport of famous international brands like Dosco, Clayton, WAM, SIM etc

Presently, GCL has six manufacturing plants spread across Aurangabad & Pune in Maharashtra and Chennai, Ranipet & Gummidipoondi in Tamilnadu. In view of anticipated higher demand, company has last year set up an additional manufacturing facility for concrete mixers at its existing location in Gummidipoondi. Moreover, few weeks back it inaugurated its technology centre and a new diesel engine plant at Chinchwad, Pune equipped with the state-of-the-art facilities to manufacture new generation water-cooled multi cylinder medium HP diesel engines for one-ton four wheelers, gensets and industrial applications. As a part of company’s long term strategy to position itself in the global market, GCL last year acquired, Bukh Farymann Diesel GmbH (renamed as Greaves Farymann Diesel GmbH) which is engaged in the manufacture and marketing of single cylinder diesel engines and parts for Rs 25 cr.

On the flip side, Piaggio – the largest client representing nearly 30% of GCL’s total revenue is planning to set up its own engine production facility, which is expected to be operational in 2010. However, the likely impact on this is expected to be more than offset by a combination of various initiatives being taken by the GCL, such as diversifying the application range of engines, focusing on global business opportunities by leveraging of 'Farymann' brand, introduction of newly developed twin cylinder engines and tying up new OEMs for SCV application. Moreover on the contrary, couple of weeks back Piaggio Group's Indian subsidiary signed a 8 year agreement with the company for purchase of mono-cylinder diesel engines for application on the three-wheeled vehicles manufactured by them. This implies that GCL will continue to be a single source supplier of such mono-cylinder diesel engines to Piaggio.
On the other hand, its strong service and distribution network has helped GCL counter competition from China. To maintain its future growth company is putting special thrust on greater penetration in rural sector and targeting overseas markets for pump sets. In short, with ambitious plans to capitalize on the opportunities across the industrial, automotive and infrastructure sectors, GCL is set to boost its brand equity in the market. Although it ended FY07 on quite a robust note but for FY08 ending June 2008 it is estimated to clock a turnover of Rs 1400 cr and PAT of Rs 115 cr. This translates into EPS of Rs 24 on current equity of Rs 48.80 cr. At a fair discounting by 16x~18x times, scrip has the potential to touch Rs 380 ~ 430 within 12~15 months. Hence investors are advised to accumulate at sharp declines.

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