Company Update: Greaves Cotton Ltd (GCL)
¾ In its conference call with investors, Greaves Cotton (GCL) management shared broad contours of its plans to foray into sale of after-sales spares. The company already derives ~ 20% of its revenue from engine spares. However, it now plans to extend its offering to include sale of spares for products manufactured by competitors. Sourcing for this extended range of spare parts would be done through vendors. The company's strength lies in its reach, which it plans to expand further by opening 1500 outlets. The company is hoping to gain a meaningful market share of after-sales market for 3W in the next three years.
¾ The GCL stock trades at a discount to the sector and broadmarket. This is despite having a strong balance sheet, high dividend payouts and attractive return ratios. The street's concerns centers around the growth outlook for 3W industry, which partly explains the discount in stock valuations. Going ahead, we see tailwinds in the form 1) Implementation of BS IV emission norms for 3W in April 2017 2) Replacement demand for ageing fleet. In view of reasonable valuations, attractive return ratios and healthy dividend payouts, we maintain BUY with an unchanged price target of Rs 160.
¾ Risks and Concerns: Sustained slowdown in economic growthYou received this message because you are subscribed to the Google Groups "LONGTERMINVESTORSRESEARCH" group.
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