Stock To Buy: For 20% Potential Gains, Sharekhan Recommends Buy This E-Mobility Stock

Greaves is one of the leading suppliers of powertrain and related solutions to auto original equipment manufacturers (OEMs). The company has a lions share in the 3W diesel segment. The companys products can be classified into four categories - engines (48% of sales), aftermarkets (23% of sales), e-mobility (12% of sales), and others (18% of sales). The other segment includes power gen sets, agri-equipment, and other application-based engines. Today stocks of the Greaves Cotton Ltd opened with gain. Currently, the stocks are trading near their 52 Week low at 148.75 per share. Sharekhan recommends to buy this stocks for a potential gains of 20% in near terms. nbsp; Greaves Cotton Limited (Greaves) reported strong Q4FY22 results, with better than expected revenue, EBITDA and PAT. Net revenue was up 19.3% y-o-y and 27.6% q-o-q to Rs621 crore in Q4FY22, led by the performance of subsidiary businesses. E-mobility business accounts for 38% of overall revenue in Q4 and turned profitable. EBITDA margin for Q4FY22 stood at 6.5%, which is a 370-bps q-o-q improvement, led by improved product mix, operating leverage benefits and cost reductions. The management remains positive on its diversification strategy and expects to normalize its sales and profitability going forward. The e-mobility is showing strong growth, despite the supply constraints due to chips and parts shortages.We expect Greaves to clock a 20.5% revenue CAGR during FY2021-24E and also see a sharp rise in margins, leading to an earnings CAGR of 103.4%. The companys diversification strategy is reaping benefits with new businesses contribution increasing to ~49% of total revenue in FY22 versus 30% in FY21. The stock price has corrected ~32% over the last three months, making valuation comfortable at P/E multiple of 24.8x and EV/EBITDA multiple of 14.2x its FY2024E estimates, Sharekhan has said in its latest report.Advertisement According to the brokerage firm, Sharekhan, the key positives for the stocks, The diversification strategy of Greaves is reaping benefits with new businesses now contributing ~49% of total revenue in FY22 as compared to 30% in FY21. E-mobility business turns positive during the Q4FY22, with sales volumes (e-2W + e-3W) of 24,953 units, a growth of 148% y-o-y and 15% q-o-q. The company has also strengthened its presence across the entire value chain of last-mile mobility by launching AutoEVMart, an of multi-brand EV retail network. EBITDA margin for Q4FY22 stood at 6.5%, which is a 370bps q-o-q improvement, led by improved product mix, operating leverage benefits and cost reductions. Commenting on the negatives, the brokerage has said, The chips shortage is impacting its e-mobility sales. Greaves continues to grow strongly, aided by its timely investments and expansion in e-mobility and non-auto businesses. We expect the 3W industry to gain demand, as the economy moves towards normalcy. The opening of schools, educational institutions, corporates, and local/ metro trains will be the key catalysts for demand. Greaves will be the key beneficiary of a recovery in 3W demand. Additionally, the companys focus on new businesses, especially e-2Ws and e-3Ws, provides strong room for strong growth. In the e-2W segment, the company maintains its market share, despite rising competition. The stock price has corrected ~32% over the last three months, making valuation comfortable at P/E multiple of 24.8x and EV/ EBITDA multiple of 14.2x its FY2024E estimates. Improving the financial performance of the e-mobility business through focusing on high-speed e-2Ws, increasing retail penetration and new launches further provides comfort to its management team. We, thus, upgrade our rating to Buy with a revised PT of Rs178, Sharekhan has said in its report.Commenting on the revised PT, the brokerage has said, We have fine-tuned our estimates in light of the improved operational performance of the e-mobility business. Greaves is expected to clock a 20.5% revenue CAGR during FY2021-24E and also see a sharp rise in margins, leading to an earnings CAGR of 103.4%.According to the brokerage firm, the companys performance can be impacted adversely if commodity prices continue to rise at the current pace. Moreover, a prolonged delay in the recovery of the 3W industry can materially impact our revenue projections. The stock has been picked from the brokerage report of Sharekhan Securities. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before taking any investment decisions.