Latest News | Greaves Cotton Faces Growth Challenges in Conventional Business, BS-VI Transition to Hit Margins in Near-term: Report

Mumbai, Jun 8 (PTI) Growth challenges for Greaves Cotton persist in conventional business, while BS-VI transition cost will continue to affect margins in the near-term, Edelweiss Research said in a report.

The city-based diversified engineering company had last week reported a 98.28 per cent dip in consolidated net profit at Rs 55 lakh in the fourth quarter ended March 2020.

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It had posted a net profit of Rs 32.14 crore a year ago, while revenue from operations during the quarter under review declined 28.54 per cent to Rs 386.19 crore as compared with Rs 540.50 crore in the corresponding period of 2018-19.

Its revenue from engines segment stood at Rs 331.07 crore, while that from electric mobility was at Rs 34.55 crore during the quarter.

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The company's e-mobility arm Ampere Vehicles is expected to launch its high-speed e-three-wheeler Magnus next week.

According to the report, the company's revenue was impacted due to weak macros, while margins were lower on account of costs involved in the transition to BS-VI technology.

Domestic auto industry made substantial investment in switching over to new emission norms, Bharat Stage-VI (BS-VI) from BS-IV, which came into effect from April this year.

According to the report, a tepid macro industry environment impacted overall revenue even as e-two-wheelers continued to post strong growth of 46 per cent year-on-year (Y-o-Y).

"Management was unable to pass through BS-VI transition cost to OEMs (Original Equipment Manufacturers); all in all.

"EBITDA (earnings before interest, taxes, depreciation and amortisation) margins slid 480 basis points Y-o-Y to 8.5 per cent in spite of a 34 per cent reduction in employee cost due to reversal of performance incentive," it said.

The BS-VI transition cost will continue to affect margins in the near-term, the report added.

The management's focus on cost control and diversification/new products in a weak demand environment have started yielding benefits, "growth challenges, however, persist in the conventional business," it said.

The company's focus on new products continues to yield benefits with revenue from these products accounting for 21 per cent in the topline in FY20 as against 6 per cent in the fiscal ended March 2019.

For the full financial year 2019-20, Greaves Cotton's net profit was down 21.74 per cent to Rs 127.27 crore. It stood at Rs 162.63 crore in 2018-19.

Revenue from operations stood at Rs 1,910.96 crore in FY20, down 5.17 per cent from Rs 2,015.32 crore in 2018-19.

"Negative operating leverage coupled with BS-VI transition costs dented margin to 8.5 per cent (decadal low) while the latter cost will continue to eat into margin in the near-term," stated the report.

Ampere's position in the bottom-of-the-pyramid EV chain continues to gather steam with a 21 per cent market share with 200 dealerships in FY20, albeit on low industry volumes versus total mobility, it said.

"Greaves Cotton's cost structure/business model is fairly competitive and could withstand current challenges in our view."

With Ampere's high speed electric three-wheeler (Magnus) expected to be launched this month, Greaves will have a full range of products (Rs 30,000–Rs 85,000) to cater to the bottom of the pyramid, it added. PTI IAS

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