Greaves Cotton Growth Levers
Greaves Cotton Limited continues to tap into new growth levers like affordable emobility and sustainable cleantech solutions.
Greaves Cotton Limited continues to tap into new growth levers like affordable e-mobility and sustainable cleantech solutions.
Greaves Cotton Ltd. has found success with new levers of growth. Ranked 13th in Fortune India’s Mid-sized Marvel section of ‘The Next 500’ list, the company continues to contribute strongly to the affordable and last-mile mobility ecosystem. On one hand the company has tightened its grip through a refreshed positioning in the engine and engine products business with its BSVI range while on the other hand, the Original Equipment Manufacturer (OEM) is counting on its diversification into new businesses like emobility and cleantech solutions. Helping it withstand the headwinds, the new businesses include new engine applications, MB Spares and new mobility. Notably, it has helped the company add Rs.400 crore to the overall revenue since FY2017 (including growth delta). In effect, from contributing six per cent to the overall revenue in FY2017, new businesses have grown to contribute 21 per cent to the overall revenue in FY2020, at a near 4x growth rate.
Revenue for FY2020 from new mobility
segments as a subset of the new businesses is pegged at Rs.145 crore compared to Rs.48 crore in FY2018. According to Nagesh Basavanhalli, Managing Director and Chief Executive Officer, Greaves Cotton Ltd., the company continues to accelerate its new business initiatives and scout for new levers of growth. Averred Basavanhalli, “We are offering uninterrupted journeys in the affordable mobility space where we play in the heart of the market in the price band of Rs.35,000 to Rs.80,000.” “We are optimistic of growth in the electric two-wheeler and e-rickshaw segment coupled with allied segments where we also see an uptick,” he said. The company in 2015-16 had decided to diversify the business to cleantech sectors and in the non-automotive domain. In the non-emobility segment, the company provides affordable mobility solutions, manufacturing four lakh plus engines annually. The company had crossed five million engines at the end of FY2019.
Shifting emobility levers
Building a strong EV portfolio under the Ampere Electric Pvt. Ltd. umbrella has the company command a 21 per cent market share amongst the organised players. The portfolio has been further strengthened by expansion, acquisition and the recent new electric scooter - ‘Ampere Magnus Pro’ launch. It joins the existing products: ZEAL and Reo Elite in the electric two-wheeler portfolio. In line with the 3R approach, through Ampere Vehicles, the company recently announced the acquisition of Noida based electric three-wheeler company Bestway Agencies Pvt. Ltd. (BAPL). Speaking of the acquisition, said Basavanhalli, the objective was to build on the company’s strengths. “We command a 70 per cent market share in engine, three-wheeler and the passenger-cargo segment that makes up the last-mile mobility. The idea is to cater to the customer needs for a complete ecosystem in this segment where the building products will cater to the duty cycle, service, spares including financial services through Greaves Finance.”
Greaves Cotton has acquired a 74 per cent stake in BAPL with an objective to accelerate the development of cleantech solutions especially aimed at offering affordable last-mile mobility. BAPL sells e-rickshaws under the ‘Ele’ brand, claimed to be amongst the top three brands in the organised markets of East India besides its stronghold in Eastern Uttar Pradesh. The latter also sells parts of electric three-wheelers and has a presence in 16 states operating with 125 dealers including a manufacturing unit in Greater Noida. With a claimed strong B2C presence in the mass market passenger segment, BAPL is known to have ventured into the cargo carrier and B2B commercial mobility segment with custom-built applications. The BAPL development, manufacture, distribution and sale of electric
vehicles, includes e-rickshaws and e-loaders but does not limit to it. Among potential new launches from Greaves Cotton are the Lithium-ion E-Rickshaw and E-Loader.
With the new acquisition, the company is hoping to address a wider range of customer segments. The first phase of the acquisition (74 per cent) was scheduled to be completed by July 30, 2020, and subject to closing conditions. For the first phase of the acquisition, an upfront cash consideration of rupees seven crores (includes share purchase consideration, and non-compete and non-solicit fees, payment being subject to completion of pre and post-closing obligations). The second phase of acquisition (26 per cent) is aimed at by August 2021, subject to various conditions agreed between the two entities.
Financial snapshot
Net operational revenue for the fourth quarter ended March 2020 (Q42020) stood at Rs.359.58 crore compared to Rs.494.67 for the previous quarter (Q32020). The net profit stood at Rs.10.03 crore for Q42020 compared to Rs.54.05 for Q32020. For FY2020, total revenue stood at Rs.1821.11 crore with the net profit amounting to Rs.147.51 crore down from Rs.169.30 crore in FY2019. The company has grown at a Compounded Average Growth Rate (CAGR) of four per cent for the period FY2017-20. For FY2020, Ampere’s net revenue is pegged at Rs.89.8 crore with a Profit After Tax (PAT) at (-) 20.4 crore attributed largely to higher expenses compared to the previous financial year.
Covid-19 material impact and China trade
According to Basavanhalli, the Covid-19 pandemic has slowed down the entire industry and Greaves Cotton is not immune to it either. “The pandemic has directly affected both the demand and supply side creating a severe impact on the overall economy.” Citing liquidity pressures, he acknowledged the downward pressure on the sector as a whole. He added that the company had re-evaluated and accelerated select plans to bounce back. “Our business practices and strong Enterprise Risk Management (ERM) framework has helped in dealing with such an unprecedented crisis. Our approach has been to respond and not react to critical situations,” he expressed. Further commenting on it, he added, “We’re watching both the demand side and supply side and taking required measures internally.”
The company is known to have utilised the opportunity to prepare its responses to the post Covid-19 reality where the focus remains primarily on ensuring readiness to jumpstart operations by implementing social distancing at factories with a cautious optimism. The Company is claimed to
have prepared a well-chalked out plan to deal with the crisis situation and put in place a comprehensive action roadmap across its various functions. There is pent up demand across gensets, engines and farm equipment, he stated.
Speaking on the China trade barriers, admitted Basavanhalli, China had majorly attained volume efficiencies owing to economies of scale. To create an alternate supply chain, the company is looking to accelerate its localisation levels by developing and designing new supply side frameworks. As of current, the company is heavily dependent on China with lack of alternatives for the immediate near term.
Aftersales organisation and digitisation
Deploying a 3R Approach, the company has turned agile to be able to ‘Respond’ to challenges and opportunities with a quick turnaround time; ‘Redouble’ efforts to meet quick business objectives and ‘Reimagine’ positioning to fuel its future growth strategy. The measures include cashflow management, manufacturing and supply chain stabilisation, working capital management, cost management, enhancing supply chain flexibility, accelerating channel expansion and customer acquisition besides reimagining partnerships and alliance among other strategic initiatives pertaining to not just the near but the long term.
The company continues to aim to sustain a dominance in after sales and ser vice market. The company aiming for a stronger aftermarket play has a network of upto 6300 retail outlets, 10,000 mechanics backed by a mechanic loyalty program. Deemed as the fastest growing electric two-wheeler brand, Ampere alone boasts of 385 outlets to cater to an estimated pool of 20,000 customers.
Business outlook
Greaves Cotton according to Basavanhalli is progressing well on its strategic objectives. Be it shifting from diesel to cleantech solutions in a bid to turn technologically agnostic or the foray into nonautomotive sectors. From focussing solely on Business-to-Business (B2B) to strengthening its Businessto-Client (B2C) exposure largely credited to the Ampere market share growth, addition to the pool of aftermarket retailers and the share of new buisnesses. On the sectoral growth of electric twowheelers, the company continues to remain optimistic on the growth prospects. Basavanhalli attributed the optimism to the projections of a price improvement given the delta between petrol and diesel in India. He also attributed it to the sector addressing range anxiety with the average travel range on a single charge settling at 60-75 kilometres, and expected to increase going for ward. Speaking on the automotive sector on the whole, the company maintains a cautious oulook, he signed-off.