Greaves Cotton

Emkay recommended a BUY on Greaves Cotton at the current market price of Rs 175.

The analysts at Emkay say that Greaves Cotton`s (GCL) Q1FY09 results are below their expectations. Both infrastructure equipment division and the engines segment reported disappointing set of numbers. Revenues for Q4FY08 grew by 13.5% to Rs 3.2 billion as compared to Rs 2.8 billion in the same quarter last year. The company recorded PAT of Rs 264.5 million for the quarter, a decline of 22.3%.

For FY08 the company has reported muted growth of 9.4% to Rs 13.5 billion. The analysts say that due to high raw material prices, EBITDA margins contracted by 150bps, resulting in EBIDTA of Rs 1.6 billion. Net Profit was down by 14.3% to Rs 1.1 billion. FY08 was primarily driven by strong performance on Infrastructure Equipment Division. However with slowdown in construction activity, especially the road construction segment, the growth of this division will be impacted going ahead. Also, engines business will primarily be driven by launch of twin cylinder engine. The analysts say that they will revise their numbers downwards due to slow growth in the Infrastructure Equipment Division due to slow down in construction space, especially roads and real estate and higher base impact. The stock trades at 8.3x FY08 earnings.