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This Stock Might be a Dark Horse for Long Term

Discuss This Stock Might be a Dark Horse for Long Term within the Stock Markets Tips & Gyan !! forums, part of the Quiz , Marketplace and Community games category; *** Greaves Cotton *** A power packed buy at Rs.320. This Karan Thapar Group company is leader in Light Diesel ...

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Vijith Pujari
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ViJiT
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Auckland, Auckland
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This Stock Might be a Dark Horse for Long Term - February 3rd, 2006

*** Greaves Cotton ***

A power packed buy at Rs.320.

This Karan Thapar Group company is leader in Light Diesel Engines in the range of 15 KVA to 500 KVA catering to Power generation , automotive applications and agricultural application . In automotive application, company has market share of about 60 per cent and this segment is registering a growth rate of 30 % on a year-to-year basis. The growth in this segment has been further fuelled by enhanced industrial and commercial activity as well as easy availability of finance for acquiring low cost commercial vehicles.

The Company's financial performance for FY05 (ended 30th June) has been very good with sales of Rs.738 crores, EBITDA of Rs.102 crores, PBT of Rs.101.61 crores and PAT of Rs.62.08 crores (after Deferred Tax liability of Rs.30.78 crores) resulting in an EPS of Rs.13.60.

Dividend for FY05 was 70 % and Debt equity ratio was 0.55 : 1 . As at 30.06.05 the company had total debt of Rs.79 crores while the company had Rs.66.15 crores as cash & bank balances as on that date. Hence it can be virtually termed as debt free.

For Q2 (quarter ended 31.12.05) the sales was Rs.236 crores (growth of 27 % yoy ) while EBITDA was Rs.35.76 crores (growth of 31% yoy ) while PBT was Rs.30.87 crores (growth of 48% yoy).

For FY06 (ending 30th June) the company may post sales of Rs.950 crores EBITDA of Rs.146 crores, PBT of Rs.127.50 and PAT of Rs.78 crores giving an EPS of Rs.16.50. However, of total estimated tax liability of Rs.49.50 crores ,Rs.37.50 crores (equivalent to Rs.8 per share) shall be as deferred tax liability which is not an actual tax outgo . Hence ,cash EPS for FY06 could be about Rs.27.

The 100% subsidiary of the the company .Greaves Leasing Finance Ltd.is holding 28.50 lakh shares of Crompton Greaves Ltd. Having market value of Rs.260 crores translating into a value of Rs.55 per share.

The company is almost at par with Cummins India and Kirloskar Oil Engines in terms of topline, profit parameters and bottomlines. However, share of both those companies are face value of Rs.2 and ruling at around Rs.200 level, while the share of this company has a face value of Rs.10 ruling at Rs.320.

45% shares are held by Promoters while about 34 % shares are held by Banks ,FI's , MF,UTI, and Insurance Companies with remaining held by about 44,000 shareholders.

Share is ruling at Rs.320 on a P/E of about 20 based on FY06 earning and at a cash P/E of about 12 for FY06. Based on expected topline growth of 25% and bottomline growth of 30 % for FY 07, the corresponding P/E multiple gets reduced to that extent.

Share is available at EV to EBITDA of about 7.5 times based on FY07 which is considered to be very cheap for an engineering stock .

Considering the strong financials , good dividend yield, and growth prospects share appears to be a good buy at Rs.320 which can give an appreciation of about 50 % within one year.



Credit: S.P.TULSIAN
Investment Advisor.
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