New Product Launches & Upgradation To Drive Growth
The company is undertaking new initiatives to capitalize on new opportunities and propel its future growth
Greaves Cotton Limited, a robust engineering company, is a leading producer and marketer of diesel engines, petrol engines, generator sets, pump sets and construction equipment’s. Greaves Cotton is one of the largest primary manufacturers of single cylinder diesel and gasoline engines. Also, it has dual cylinder engines which find application in running 3-wheeler vehicles and 4-wheeler small commercial vehicles. The company offers products and solutions across sectors, such as engines, power, farm equipment, mobility and aftermarket. The company functions in different sectors like automotive, non-automotive, aftermarket, Greaves retail, electric mobility (Ampere Electric for electric scooters and other electric industrial products and e-rickshaw) and Greaves Finance. The company is involved in the development of engines, engine applications and trading of power tillers, spares related to engines, electric vehicles, infrastructure equipment, etc. Greaves Cotton improved its clean technology portfolio with an entry in the last-mile affordable 2-wheeler personal mobility segment with Ampere Electric Vehicles and e-rickshaws in the last-mile people transportation segment. The company has built-up facilities for marketing and manufacturing in the states of Maharashtra and Tamil Nadu. Some of the products are exported to the Middle East, Africa and South East Asia regions, but they are mainly sold in India. The company also has two subsidiaries - direct and indirect.
Financial Overview
The company reported net sales of ₹ 373.51 crore in Q2FY22 as compared to ₹ 329.38 crore during Q2FY21. The company’s operating loss stood at ₹ 4.05 crore in Q2FY22 from operating profit of ₹ 17.33 crore in Q2FY21. The company showed a net loss of ₹ 23.29 crore in Q2FY22 as compared to ₹ 22.49 crore loss in Q2FY21. On an annual basis, the total net sales reported was ₹ 1500.40 crore in FY21 as compared to ₹ 1910.96 in FY20, a decrease of 21.48 per cent. The operating profit also declined for FY21 standing at ₹ 88.03 crore as compared to ₹ 230.29 crore reported in FY20. The company also showed a net loss of ₹ 18.78 crore in FY21 from a net profit of ₹ 127.27 crore in FY20.
The FY21 saw a significant impact on the company’s business due to COVID-19-led lockdown. The loss was due to fall in revenue due to COVID-19 impact and certain exceptional items. In the current financial year under review, there were exceptional expenses of ₹ 34.46 crore as compared to exceptional income of ₹ 4.71 crore in FY2019-20. The exceptional expense was primarily due to structural changes, which will provide long-term saving in the fixed overheads of the company. As part of company’s modification strategy, new business initiatives contributed 30 per cent of the total standalone revenue for FY2020-21.
Sector Overview
The 2-3 wheeler industry in FY2020-21 witnessed significant slowdown in industry. COVID-19 related lockdown/restricted movements dampened shared mobility. Moreover, with academic institutions and offices remaining closed, 3-wheeler passenger market took a severe hit. Furthermore, rising fuel costs increased the disparity between diesel and CNG/LPG vehicles. With the increased cost of ownership, the nonavailability of finance squeezed the sales of 3-wheeler diesel vehicles. In the auxiliary power business, the government increased spending on healthcare sector disproportionately at the cost of real estate, infrastructure, railways, and other industrial sectors. Also, as migrant workers left for hometowns due to the Covid pandemic, the labour-intensive sectors faced labour shortage, which stalled site activities for months. Similarly, the demand for gensets was majorly impacted during the first half of the fiscal year. The private sector’s new purchases came to a standstill due to uncertain business outlook. This also caused the economy to come to a halt in Q1FY2020-21. The state governments transferred their agriculture subsidy scheme funds towards expenses related to control of COVID-19 pandemic. For the farm equipment business, marginal farmers, the major buyers of small farm equipments, were forced to put their purchase decisions on hold due to lack of financial support from banks and other financial institutions. Driven by Atmanirbhar Bharat, there has been a demand push in the market from agriculture and defence segments. Especially, the tractor segment of farm machineries has seen an all-time high in FY2020-21. In addition, the anti-China sentiment has also aided the local producers, especially in the agriculture segment, to discover new business opportunities.
Future Outlook
In the case of non-automotive engines, the company is working on existing portfolio upgradation to CPCB IV and new product launch to comply with new emission standards. The company is going towards directly serving customer’s segment service model of rental/pay per use. The company anticipates its strong institutional business will help mitigate the economic slowdown impact. Greaves Cotton is building its IT-enabled systems for increasing its sales and increasing its customer relations and for tapping market intelligence on a regular basis too. Furthermore, an effort to offer best-in-class service standards will support the company to leverage on the industry growth. The company in the automotive sector is initiating several promotional efforts to strengthen it’s connect with mechanics. These mechanic loyalty rewards and CRM-related engagements would help improve the company’s balance sheet. The company plans to largely offset the impact of COVID resurgence by further growing its distribution network in identified markets. It envisages a higher growth prospect in multi-brand spares business in line with planned promotional activities.
In the electric 2-wheeler retail financing business, the company is closer to getting stabilization. Greaves Finance is placing itself to become the long-term financing arm of Greaves Cotton, with its own independent operations and differentiated offerings in EV financing. In addition to retail financing, the company has also signed up a few customers in the last-mile delivery/ aggregation services in logistics – which it serves under multiple models such as capital lease, operating lease, etc. The company plans more products for service and vehicle sales, EV segment, EV Care for electric 2W and electric 3W, and enhanced multi-brand spares coverage for ICE. Also, it plans to expand footprint in three more states in India. It is also exploring retrofit from ICE to EV. In industrial engines, many domestic and international OEMs acquisitions for FM/UL and single cylinder engines would help establish India as a strong supply partner for global companies. This is expected to drive sustained demand for the company’s industrial engine solutions. Hence, we recommend BUY.