Greaves Cotton - Book Partial Profit

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Greaves Cotton (GCL) formed a part of Dalal Street Investment Journal's recommendations in the Choice Scrip column of the issue dated August 30, 2010. The scrip was recommended at Rs 78 and is now trading at Rs 90 - up by 15.48 per cent even as the Sensex is up by a mere 6.11 per cent over the same period.

The scrip was recommended on the back of enhanced demand for engines from the auto space, which would remain the main driver for the company, and the attractive valuation of the stock which was then trading at a P/E of 16.38 times. For nine months ended March 2011 (with year ending being June), the company’s topline and bottomline have witnessed good performance on a YoY basis, growing by 22.36 per cent and 41.11 per cent respectively during this period.

Greaves Cotton operates in two segments viz. engines and infrastructure equipment. For 9ME March 2011 its engines’ division recorded a healthy volume growth, having sold 0.39 million units. The infrastructure division continues to head in the right direction with robust revenue growth at 47.5 per cent on a YoY basis to Rs 70 crore (highest in the past ten quarters).

GCL has given a guidance of better revenue prospects going forward as it plans to double its turnover over the next three years wherein it expects its revenues to grow at 26 per cent CAGR. It is also looking at increasing its penetration in Africa and European markets which may be additional growth drivers going forward.

At present, our suggestion is that readers should book partial profit in Greaves Cotton to the extent of 50 per cent of their holdings.