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Greaves Cotton company update

Contributed by Nirmal Bang

We met the management of Greaves Cotton (GRV) to get an update on its business. GRV is a focused engineering company with core competencies in manufacturing small engines (single and twin cylinder) that find application in automotive, farm equipment, industrial and auxiliary power segments. The engine business accounts for 91% of the company�fs revenue while the balance comes from the sale of construction equipments. GRV is a leading player in the outsourced small engine space and a major supplier to three�]wheeler (3W) and small commercial vehicle (SCV, ie sub one�]tonne) original equipment manufacturers (OEM). Over the years, GRV has been a key supplier to Piaggio (accounts for 42-45% of GRV�fs total engine volumes); however, the recent long term contracts with Mahindra and Mahindra (MM) and Tata Motors (TTMT) have reinforced its positioning as a niche supplier of small engines to OEMs.

Leading supplier of small engines to 3W and SCV OEMs: GRV is the key supplier of small engines to 3W OEMs and commands a market share of ~58% in the domestic 3W engine market (~37% including exports). The company has been a supplier of choice to leading 3W OEMs (excl. market leader Bajaj Auto and Force Motors which do it in-house) like Piaggio, MM, Atul Auto (ATA) and Scooters India (SCTR). A matter of concern for the company is that it is highly dependent on Piaggio currently, which accounts for 42-45% of its total engine volumes. The demand for 3Ws is witnessing a threat of late due to a shift towards SCVs where new models are now providing better dynamics compared to 3Ws. But on a positive note, GRV has successfully ventured into the SCV space with it entering into a long term partnership with TTMT to supply engines for Ace Zip (goods segment) and Magic Iris (passenger segment). While the shift from 3W to SCV is an unfavorable one for GRV, a ramp-up in volumes at TTMT (~6,500 units/month currently as against ~4,500 units/month in 2QFY2013) would be a positive for GRV. With proven and successful technology that is well accepted in the market and long term contracts with TTMT (10 years), Piaggio (8 years) and MM (5 years); GRV is likely to maintain its dominance in the outsourced 3W and SCV engine market.

Focus on non-automotive segment: GRV has been able to widen its product portfolio (offers engines in the range of 10-10,000HP) with continuous investments in R&D (~1% of sales) which has enabled it to diversify its end user base successfully. The company�fs non-automotive business, consisting of farm equipment, industrial, auxiliary power and construction equipment segments, accounted for ~45% of total revenues in FY2012. GRV is the market leader in portable petrol/kerosene engines and pumps (for the farm sector) with ~55% market share. According to the management, the outlook for farm equipment segment remains positive over the long term due to continuous support from the government and increasing farm mechanization. In the auxiliary power and industrial segments, GRV is facing intense competition (mainly from Cummins India and Kirloskar Oil Engine). The company intends to increase its presence in these segments going ahead through new product launches and focus on after sales service. GRV�fs construction equipment segment has been facing difficult times due to economic slowdown and higher interest rates. It posted a loss of `5cr in 1HFY2013. Recently, GRV has tied-up with Bomag, Mitsibushi and Samil to enhance its presence in the construction equipment segment.