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Greaves Cotton

Greaves Cotton’s Q2FY2011 (June ending company) revenues grew by 22.3% year on year (YoY) to Rs419.2 crore, which is higher than our expectation of Rs395.6 crore.

The strong performance at the operating level was further aided by a higher than expected other income and a lower than expected tax rate at 31% during the quarter. Consequently, the quarter’s profit after tax (PAT) came in at Rs44.4 crore (which is higher than our expectation of Rs37.1 crore), indicating a growth of 35.7% YoY. 

The engine division (accounting for 84% of its total sales) reported the highest ever revenue and profit before interest and tax (PBIT). The PBIT margin at 20.3% saw a 50-basis-point dip YoY but a 160-basis-point increase sequentially. During the quarter, the infrastructure equipment division turned positive at the PBIT level after eight quarters of losses.

The company’s board has recommended a second interim dividend of Re0.4 (on a face value of Rs2), thus taking the total interim dividend to Re0.8 (on a face value of Rs2).

We maintain our Buy recommendation on the stock and will review our estimates for the company after an interaction with the management.

(Reco: BUY; Cmp: Rs.92, TGT: Rs. 106)