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| 11/15/2012 9:00 PM Thursday

Greaves Cotton

I want to invest in this company at the current levels. Is it worth buying at this price?
- Sunil Jha, Via Email

AVOID

BSE/NSE Code 501455/GREAVESCOT
Face Value Rs.2.00
CMP Rs.75.00
52–Week High Rs. 95/ Low Rs. 60

From the looks of it, you seem to have already made up your mind of buying into this stock.

Question is, whether you should do it at the current price or wait a while. Almost all literature on stock investing will, by default, ask you to look at the condition of the sector that the company operates in is. Greaves Cotton, together with its subsidiaries, manufactures and sells single-cylinder and twin-cylinder diesel and gasoline engines for three- wheeled and small four-wheeled commercial vehicles.

The company also manufactures lightweight petrol, diesel/kerosene engines for agricultural applications, as also construction equipment. It exports its products principally to the Middle East, Africa, and South East Asian regions. Now, if the company is servicing a sector which in itself is not doing well, how can you expect it to do well?

GC’s financial performance substantiates our view. For the first half of FY13, its top-line witnessed a growth of only 2.41 per cent on a YoY basis and stood Rs. 861.71 crore. The net profit declined by 11.52 per cent to Rs. 65.11 crore as against Rs. 73.59 crore during the same period last year.

Looking at this, one would probably not think of investing in this company. But the company intends spending Rs. 150 crore for expansion, and it also has plans for the introduction of new products with better technology and higher margins. This is what may yield some good results going forward, and hence, we would recommend that you wait for another quarter before you enter this stock. At present, the stock discounts its twelve-month earnings by 10.37 times.

 

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