What Greaves Cotton's EV deal means for the stock
1 min read 03 Jun 2022, 10:58 AM ISTGreaves Cotton shares surged for the second consecutive session after the EV investment announcement
PremiumShares of Greaves Cotton continued to surge for the second consecutive session on the BSE in Friday's early deals after the company announced that Saudi Arabian firm Abdul Latif Jameel International will invest in the firm's electric vehicle (EV) arm, Greaves Electric Mobility (GEM).
Greaves Electric Mobility (GEM), a 100% subsidiary of Greaves Cotton (GRV), announced a strategic investment by Abdul Latif Jameel, an independent, family-owned, diversified global investor and operator. Initial investment would be $150 million ( ₹11.6 bn) for a 35.8% stake in GEM, valuing the company at ₹32.4 bn. GEM has an option to draw down an additional investment of $70 mn within 12 months.
“The announcement is quite positive as it provides GEM cash cushion to invest across business functions in the EV space. However, the valuation ascribed to the EV business is lower than our expectation," said brokerage Edelweiss in a note. The brokerage house has Buy rating on Greaves Cotton shares with a 12-month target price of ₹181.
Strong traction in e-mobility, reviving traditional business and a sound balance sheet makes GRV well placed to focus on a faster ramp-up and gaining the first-mover advantage in EVs.
Capital infusion in the e mobility business should spur management to take aggressive steps in ramping up its network and invest in brand building as well as R&D, the note stated.
The initial investment will be of $ 150 million ( ₹1,160 crore) for a 35.8% stake on a fully diluted basis in Greaves Electric Mobility. Post money equity value for the EV subsidiary will be of $419 million ( ₹3,238 crore).
The proceeds from this investment will be used to develop new products, associated technologies, brand awareness, aiming to transform the Company into a leading global EV manufacturer.
The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.
