CMP (Rs) 72.00

Target Price (Rs) 81.00

ISIN: INE224A01026

MAR 6th

, 2013

GREAVES COTTON LIMITED Result Update: Q3 FY13

HOLDHOLDHOLDHOLD

Stock Data

Sector Industrial Machinery

BSE Code 501455

Face Value 2.00

52wk. High / Low (Rs.) 88.50/60.00

Volume (2wk. Avg ) 6888.00

Market Cap ( Rs in mn ) 17582.40

Annual Estimated Results (A*: Actual / E*: Estimated)

Years FY12A FY13E FY14E

Net Sales 17534.40 19139.01 21244.30

EBITDA 2857.90 2546.16 2762.16

Net Profit 1854.90 1502.04 1636.45

EPS 7.60 6.15 6.70

P/E 9.48 11.71 10.74

Shareholding Pattern (%)

1 Year Comparative Graph

BSE SENSEX GREAVES COTTON LTD

SYNOPSIS

Greaves Cotton Limited is one of the leading

engineering companies in India with core

competencies in diesel/petrol engines,

gensets and construction equipment.

Greaves Cotton Ltd reported higher revenue

at Rs 5157.80 mn for the quarter ended 31st

December 2012 as against Rs 4643.50 mn for

the corresponding quarter last year (an

increase of 11.08%).

Greaves Cotton Ltd has declared a Third

Interim Dividend at the rate of Rs 0.40 per

Equity Share of Rs.2 each for the Financial

Year 2012-13.

Profit After Tax (PAT) after exceptional item

of provision for diminution in value of

investment in its subsidiary amounting to Rs

142.00 mn was Rs 344.00 mn as against Rs

342.00 mn, for the same period last year.

During the quarter, Greaves Automotive

Business entered into a Long Term Supply

Agreement with Atul Auto Ltd for supply of

diesel engines for 3 wheeled diesel vehicles,

for a period of seven years.

Net Sales and PAT of the company are

expected to grow at a CAGR of 19% and 9%

over 2011 to 2014E respectively.

Peer Groups CMP Market Cap EPS P/E (x) P/BV(x) Dividend

Company Name (Rs.) Rs. in mn. (Rs.) Ratio Ratio (%)

Greaves Cotton Ltd 72.00 17582.40 7.60 9.48 2.72 110.00

Cummins India Ltd 490.00 135550.80 25.98 18.82 6.63 550.00

Elecon Engineering Ltd 35.35 3282.70 6.49 5.45 0.74 90.00

KEC International Ltd 49.10 12623.00 3.51 13.99 1.26 60.00

Investment Highlights

Results updates- Q3 FY13,

Greaves Cotton Ltd, established in 1859, is one of

India's leading and well-diversified Engg companies

& it manufactures a wide range of industrial

products to meet the requirement of core sectors in

India and abroad, reported its financial results for

the quarter ended 31st DEC, 2012.

Months DEC-12 DEC-11 % Change

Net Sales 5157.80 4643.50 11.08%

PAT 343.60 341.60 0.59%

EPS 1.41 1.40 0.59%

EBITDA 643.70 596.20 7.97%

The company’s net profit decreased to Rs.343.60 million against Rs.341.60 million in the corresponding quarter

ending of previous year, an increase of 0.59%. Revenue for the quarter rose 11.08% to Rs.5157.80 million from

Rs.4643.50 million, when compared with the prior year period. Reported earnings per share of the company

stood at Rs.1.41 a share during the quarter, registering 0.59% increase over previous year period. Profit before

interest, depreciation and tax is Rs.643.70 millions as against Rs.596.20 millions in the corresponding period of

the previous year.

Expenditure :

Break up of Expenditure

Value in Rs. Million

Q3 FY13 Q3 FY12

Cost of Material Consumed 3531.70 3248.20

Employee Benefit Expenses 375.90 343.60

Depreciation 98.60 82.60

Other Expenses 441.00 392.70

Purchase of Stock in Trade 94.00 147.90

Segment Revenue

Latest Updates

• Greaves Cotton Ltd has declared a Third Interim Dividend at the rate of Rs 0.40 per Equity Share of Rs.2 each

for the Financial Year 2012-13. The total Interim Dividend for the Financial Year 2012-13. Including the First

Interim Dividend of Rs 0.30 and the Second Interim Dividend of Rs 0.40, will be Rs 1.10 per Equity Share of

Rs.2 each.

• Greaves Automotive Engine Business was awarded the prestigious "Excellence in Delivery" Award from Tata

Motors for meeting the demand for engines for Ace Zip and Magic Iris.

• According to Annual Report 2011-12, Greaves Cotton plans to expand its footprints into higher KVA segment

and emerge as a one stop-shop for varying customer needs.

Company Profile

Greaves Cotton Limited, established in 1859, 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. The Company's core competencies are in Diesel / Petrol Engines, Gensets, Pumpsets & Construction

Equipment. In the recent years, Greaves has made rapid strides towards globalization. The Company exports

several of its products to various countries.

Greaves has 9 Manufacturing Units located all over India, two overseas offices in U.K. and China and one

subsidiary company in Germany. The Company's manufacturing plants are equipped with state-of-the-art

production a facility, backed by in house R&D. Greaves Cotton Limited is certified by ISO/TS 16949-2002.

Business Divisions:

• Agricultural Equipment

Greaves manufactures lightweight petrol, diesel / kerosene engines in the 1-4 HP range and portable eco-

friendly silent Gensets in the 1.4 KVA range at its ISO 9001 certified Petrol Engines Unit, in Chennai. The

engines are most popular for agriculture applications like power sprayer, pump sets and power reapers.

Greaves is the trusted name across rural India for lightweight, portable pump sets. Greaves has stepped up its

contribution to Indian agriculture with the launch of Greaves Power Tiller, manufactured by a leading

manufacturer in China and customized to suit Indian conditions.

• Automotive Division

Highly fuel efficient, Greaves lightweight diesel engines are ideal for automotive applications like 2-wheelers,

3-wheelers, mini cars etc. These engines with high power-to-weight ratio are also used extensively for

portable agricultural pump sets, gensets, small boats, construction equipment and host of other applications.

Available in a range of 4-11 HP models, Greaves light diesel engines are manufactured at ISO 9001 certified

Units in Aurangabad and Ranipet.

• Auxiliary Power

Greaves leads the field in the manufacture of Diesel Engines (10-1000 HP) used for diesel generating sets,

barges, pilot launches, compressors, construction equipment, cranes, forklifts, etc. Greaves also manufactures

Dual Fuel Engines / Gensets (30 KVA to 400 KVA) and Gas Engines / Gensets (125 KVA to 300 KVA)

operating on natural gas. Manufactured at ISO 9001-2000 certified Unit at Chinchwad, Pune, and quality is

assured. Among the first few foundries with ISO-9001 certificate of approval Greaves Limited Foundry

Unit is one of the pioneers in the manufacture of Quality Castings in India having begun operations in 1955,

to supply ductile iron casting for Greaves Engines.

• Construction Equipment

To meet the challenges of construction industry, Greaves manufactures wide range of Compaction and

Concreting equipment. The complete range of concrete equipment like Transit Mixers, Concrete Pumps,

Batching Plants, etc. are manufactured at the Company’s ISO 9001 certified Plants at Gummidipoondi (Tamil

Nadu). Greaves also manufactures the complete range of compaction equipment like Vibratory Soil

Compactors, Heavy Tandem Rollers, Light tandem Rollers at Gummidipoondi.

Greaves construction equipment is mainly used for construction of roads, bridges, buildings, ready mix

concrete applications, etc. Greaves caters to the service and spare parts requirement of customers through

their large network of qualified and trained service engineers located a various branches and dealerships

• Compaction Equipment

• Concreting Equipment

• Earth Moving Equipment

Industrial Engines

Wherever an engine is required to power equipment that is needed to pump, dig, pull, push, carry or move,

Greaves can tailor a power pack solution exactly to the need. Greaves offers a wide range of versatile, fuel-

efficient engines in the range of 1-700 HP for a host of applications in:

� Marine.

� Agricultural Equipment.

� Fire fighting pump sets.

� Mining & Construction.

� Material Handling (Cranes, Forklifts).

� Rail Cars, Road Sweepers etc.

These engines are manufactured at state of the art manufacturing facilities in Pune, Aurangabad (Maharashtra)

Gummidipoondi and Ranipet (Tamil Nadu).Dual fuel engines also available.

Subsidiary Companies

� Greaves Farymann Diesel GmbH, Lampertheim, Germany (GFD).

� Greaves Co6on Netherlands B.V. (GCN).

� Greaves Leasing Finance Limited (GLFL).

� Dee Greaves Limited (DGL).

� Greaves Auto Limited (GAL).

� Ascot International (AI).

Financial Highlight

Balance sheet as at March31st, 2012

(A*- Actual, E* -Estimations & Rs. In Millions)

FY12 FY13E FY14E

EQUITY AND LIABILITIES:

Shareholders’ Funds:

Share Capital 488.40 488.40 488.40

Reserves and Surplus 6005.30 7466.44 9102.89

Net worth (a) 6493.70 7954.84 9591.29

Non-Current Liabilities:

Long-term borrowings 1.70 1.79 1.87

Deferred Tax Liabilities [Net] 299.60 344.54 389.33

Other Long Term Liabilities 31.50 33.39 35.06

Long Term Provisions 204.70 186.28 176.96

Long term liabilities (b) 537.50 565.99 603.23

Current Liabilities:

Short-term borrowings 200.00 240.00 280.80

Trade Payables 1935.50 1780.66 1673.82

Other Current Liabilities 791.10 656.61 584.39

Short Term Provisions 958.60 1140.73 1346.07

Current Liabilities © 3885.20 3818.01 3885.07

Total (a+b+c) 10916.40 12338.84 14079.59

ASSETS:

Non-Current Assets:

Fixed Assets:

Tangible Assets 3209.40 3851.28 4606.74

Intangible Assets 50.10 46.59 48.92

Capital work-in-progress 167.80 234.92 305.40

Intangible Asset under Development 35.60 39.16 41.51

(d) 3462.90 4171.95 5002.57

Other non-current assets 13.70 13.70 13.70

Non Current Investments 528.80 475.92 452.12

Long Term Loans and Advances 214.80 225.54 232.31

(e) 757.30 715.16 698.13

Current Assets:

Current Investments 585.40 936.64 1404.96

Inventories 1699.70 1750.69 1820.72

Trade Receivables 2559.20 2635.98 2741.42

Cash and Bank Balances 702.50 807.10 906.11

Short Term Loans and Advances 1144.50 1316.18 1500.44

Other Current Assets 4.90 5.15 5.25

(f) 6696.20 7451.73 8378.89

Total (d+e+f) 10916.40 12338.84 14079.59

Annual Profit & Loss Statement for the period of 2011 to 2014E

Value(Rs.in.mn) FY11 FY12 FY13E FY14E

Description 12m 12m 12m 12m

Net Sales 12504.70 17534.40 19139.01 21244.30

Other Income 140.80 59.80 197.08 212.84

Total Income 12645.50 17594.20 19336.09 21457.14

Expenditure -10526.70 -14736.30 -16789.93 -18694.99

Operating Profit 2118.80 2857.90 2546.16 2762.16

Interest -72.20 -34.80 -9.43 -7.83

Gross profit 2046.60 2823.10 2536.73 2754.33

Depreciation -209.80 -317.30 -387.99 -465.59

Profit Before Tax 1836.80 2505.80 2148.74 2288.74

Tax -564.00 -650.90 -646.70 -652.29

Net Profit 1272.80 1854.90 1502.04 1636.45

Equity capital 488.40 488.40 488.40 488.40

Reserves 4730.50 5964.40 7466.44 9102.89

Face value 2.00 2.00 2.00 2.00

EPS 5.21 7.60 6.15 6.70

Quarterly Profit & Loss Statement for the period of 30 June, 2012 to 31st Mar, 2013E

Value(Rs.in.mn) 30-Jun-12 30-Sep-12 31-Dec-12 31-Dec-12E

Description 3m 3m 3m 3m

Net sales 4115.80 4501.30 5157.80 5364.11

Other income 29.40 20.40 68.50 78.78

Total Income 4145.20 4521.70 5226.30 5442.89

Expenditure -3619.00 -3959.10 -4582.60 -4629.23

Operating profit 526.20 562.60 643.70 813.66

Interest -3.10 -1.60 -2.20 -2.53

Gross profit 523.10 561.00 641.50 811.13

Depreciation -88.90 -94.00 -98.60 -106.49

Profit Before Tax 434.20 467.00 542.90 704.64

Tax -118.70 -131.40 -199.30 -197.30

Net Profit 315.50 335.60 343.60 507.34

Equity capital 488.40 488.40 488.40 488.40

Face value 2.00 2.00 2.00 2.00

EPS 1.29 1.37 1.41 2.08

Ratio Analysis

Particulars FY11 FY12 FY13E FY14E

EPS (Rs.) 5.21 7.60 6.15 6.70

EBITDA Margin (%) 16.94% 16.30% 13.30% 13.00%

PBT Margin (%) 14.69% 14.29% 11.23% 10.77%

PAT Margin (%) 10.18% 10.58% 7.85% 7.70%

P/E Ratio (x) 13.81 9.48 11.71 10.74

ROE (%) 24.39% 28.75% 18.88% 17.06%

ROCE (%) 44.15% 47.72% 35.93% 32.89%

EV/EBITDA (x) 8.04 5.98 6.67 6.12

Book Value (Rs.) 21.37 26.42 32.58 39.28

P/BV 3.37 2.72 2.21 1.83

Charts

Outlook and Conclusion

� At the current market price of Rs.72.00, the stock P/E ratio is at 11.71 x FY13E and 10.74 x FY14E

respectively.

� Earning per share (EPS) of the company for the earnings for FY13E and FY14E is seen at Rs.6.15 and Rs.6.70

respectively.

� Net Sales and PAT of the company are expected to grow at a CAGR of 19% and 9% over 2011 to 2014E

respectively.

� On the basis of EV/EBITDA, the stock trades at 6.67 x for FY13E and 6.12 x for FY14E.

� Price to Book Value of the stock is expected to be at 2.21 x and 1.83 x respectively for FY13E and FY14E.

� We recommend ‘HOLD’ in this particular scrip with a target price of Rs.81.00 for Medium to Long term

investment.

Industry Overview

The Indian Industrial Machinery sector is the mainstay of entire Indian industry as manufacturing output

constitutes over 75 per cent of the index of industrial production (IIP). Indian manufacturers have adopted a

global mindset while carefully selecting their product segments. They are continuously working to achieve cost

excellence and marketing capability which has even attracted foreign players to proactively develop India as

their sourcing and manufacturing hub.

India enjoys a competitive advantage on the global canvas owing to key reforms in taxation, infrastructure and

clusters (like special economic zones [SEZs]) implemented by the Government, availability of reasonably-priced

skilled labor workforce and a positive eco-system. Moreover, the global trend to manufacture and source

products in low-cost countries has gained pace in the past decade, particularly in skill-intensive industries, and

India has been able to leverage on the opportunity to its best.

Growth Trend

The HSBC India Manufacturing Purchasing Managers' Index (PMI) - a measure of factory production -was at 56.6

in February 2012. The latest reading indicated a marked expansion of the Indian manufacturing sector which

was spurred by new orders (that touched a 10-month high) and a rise in new export business for the month.

The Indian manufacturing sector also showed moderate overall business sentiment in October-December 2011

quarter, as per the Industrial Outlook Survey conducted by the Reserve Bank of India (RBI) for the quarter. The

business expectation index (BEI), which acts as a barometer of the overall health of the manufacturing sector,

stood at 110.1 for the assessment quarter while RBI expects it at 117.2 for the January-March 2012 quarter.

The IIP for the Mining, Manufacturing and Electricity sectors for the month of December 2011 stood at 136.2,

190.7 and 149.8 respectively wherein manufacturing grew by 1.8 per cent. In terms of industries, 15 out of the

22 industry groups (as per 2-digit NIC-2004) in the manufacturing sector have shown positive growth during the

reported month.

Key Developments and Investments

• Shanghai Electric, China's biggest power equipment company, is all set to establish a manufacturing facility in

India. The company is in advanced stages of negotiations with French power major Alstom for a joint venture

facility that would manufacture boilers for power projects

• Detroit-headquartered automaker Ford Motor Co will make India its manufacturing hub for small, low-cost

cars that would cater to markets in Africa and the Asia-Pacific region. The company will set up a plant in

northwest India in 2014 that would entail an investment of US$ 1 billion and would have an annual capacity

of 2, 40, 000 units. Ford's existing manufacturing unit in Chengalpattu is undergoing enhancements and is

expected to be in full production mode by the end of 2012.

• Germany-based Hummel AG Group's subsidiary Hummel Connector Systems is establishing a manufacturing

facility at Neelambur, near Coimbatore, entailing an investment of €3,00, 000 (US$ 3,94,360.03). Hummel

produces cable glands, circular connectors, industrial enclosures, touch panels and electronics for medical,

measurement and control technology

• In order to price its new offering competitively, Japanese bike-maker Yamaha is planning to manufacture its

soon-to-arrive 250cc sports bike locally in India

• Japan-based electronics and durables giant Toshiba has commenced local manufacturing of selected TV

models in limited numbers at a facility in Dehra Dun. In order to ramp up its volumes across various

categories, the company is conducting a feasibility study to go-in for local manufacturing in a bigger way

Government Initiatives

The Indian Government is laying intense focus on developing the manufacturing sector. It has set itself a target to

ensure that 25 per cent share of gross domestic product (GDP) growth comes from manufacturing by 2022 and

eventually creating 100 million job opportunities to make the growth inclusive.

Mr. Talleen Kumar, Joint Secretary, Department of Industrial Policy and Promotion, Ministry of Commerce and

Industry, Government of India, has stated that there are five more National Manufacturing Investment Zones

(NMIZs) which are being proposed apart from seven of them which are ready for execution in the Delhi Mumbai

Industrial Corridor.

The Indian Government has also invited Italian industry to get involved in the proposed NMIZs. Mr. Anand

Sharma, Commerce, Industry and Textiles Minister, India, has had a meeting with Italy's Foreign Minister Mr.

Guilio Terzi di Sant' Agata recently. India and Italy have Joint Working Groups (JWG) which give their

recommendations about infrastructure, manufacturing, innovation and science, information technology and

pharmaceuticals. More JWGs on tourism, hospitality and agro-processing are being considered.

The Government has also made certain recommendations for the manufacturing policy that would be unveiled

during the announcement of 12th five year plan. The proposed manufacturing policy enlists the following

recommendations:

• Make amendments in duty structure to ensure equal opportunities to local manufacturers. In this regard,

Government has proposed to impose 19 per cent duty on imported equipment for mega power projects. The

cabinet has also agreed to give preference to indigenously manufactured electronic products (step-up value

addition between 25-45 per cent in five years) in Government procurement

• Public sector enterprises (PSEs) should focus on areas that hold national importance, but look commercially

unfeasible to the private sector because of the heavy investments and risks involved. For instance: aircraft

production

• Ensure flexibility for entry and exit of public investment in the process of industrial growth by endorsing a

single holding structure or new PSEs. The model is proposed to be a combination of a sovereign wealth fund,

a single holding structure and the Government acting as a venture capitalist

Road Ahead

According to a joint report titled 'Made in India-the Next Big Manufacturing Export Story', prepared by industry

body CII and McKinsey, manufacturing exports from India could increase from US$ 40 billion in 2002 to about

US$ 300 billion by 2015. This would make India rake-in a share of approximately 3.5 per cent in the world

manufacturing trade.

Disclaimer:

This document prepared by our research analysts does not constitute an offer or solicitation for the purchase or sale

of any financial instrument or as an official confirmation of any transaction. The information contained herein is

from publicly available data or other sources believed to be reliable but do not represent that it is accurate or

complete and it should not be relied on as such. Firstcall India Equity Advisors Pvt. Ltd. or any of it’s affiliates shall

not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the

information contained in this report. This document is provide for assistance only and is not intended to be and must

not alone be taken as the basis for an investment decision.

Firstcall India Equity Research: Email – info@firstcallindia.com

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