Greaves diversifies business as e-mobility drives revenue

Greaves Cotton Ltd’s electric mobility division is now the key driver of its revenue growth, surpassing its core internal combustion engine business, according to a senior official. However, the engine maker is balancing its diversification with expanding its traditional IC components and non-automotive businesses to maintain profitable growth, as the new e-mobility unit will require investments over the next 3-5 years, the official said.

In FY23, Greaves Electric Mobility (GEM), which owns the electric two-wheeler brand Ampere, contributed 42% to the group’s ₹2,700 crore revenue, the highest ever. In the March quarter, the electric mobility business’ contribution increased to over 46% at ₹383 crore of the group’s revenue, while its engineering and retail businesses contributed to the remainder of its ₹827 crore revenue for the quarter. Greaves is expanding its auto businesses with a 60% acquisition in Excel Control Linkages, an OEM which manufactures push-pull cables, motion sensors and controls. The engineering company has also partnered with UK’s Eta Green Power to manufacture electric powertrain solutions in-house at its factory in Aurangabad, including battery packs, electric motors and battery management systems (BMS). The company will get to production once it has a clear line of sight on the order book, Nagesh Basavanhalli, vice chairman of Greaves Cotton, said in an interview.

“At a broad level, while some of the newer businesses like electric mobility may grow faster at the topline level, we see at the bottom line there will be pressures. But at the group level and by virtue of even the core business being strengthened, the core business is no longer our engine business. Now it’s engines plus other components that are going to be significantly profitable. Hence the net effect will be at a group level. We’re going to be growing not only the top line but also the bottom line. The newer businesses will continue to grow probably at a faster clip, but at the same time, the traditional business also is evolving, transforming and will also continue to grow, maybe at a slower rate”, Basanvanhalli said. “And we do understand that this industry (e-mobility) short term is in the investment phase, and we are going through a learning curve in terms of industry stabilization, supply chain stabilization, and battery standards coming in. So that’s why short term, I don’t want to set up immediate goals but medium to long term, in the 3-5 year period we should absolutely be sustainably profitable”.

Greaves’ Ampere brand clocked an operating profit of ₹75 lakh in the March quarter, making it one of the few electric scooter companies that are profitable at the moment. However, it is now marred by allegations of violating localization norms under the government’s FAME-II scheme for EV incentives, and the government has sent it a notice to recover ₹127 crore for the subsidies it has paid to Ampere already, even as nearly ₹300 crore remain stuck in further subsidy payouts.

However, the company is also doubling down its focus on high-margin components, like with its acquisition of Excel Control Linkages, which Basavanhalli hopes will improve margins for the group as soon as the first quarter of this fiscal.

“Greaves’ transformation strategy to increase e-mobility and new-initiatives business share will drive long-term growth and help transform and de-risk its business. Consolidation of manufacturing operations into Megasites will also bring higher operational efficiencies and reduced fixed costs in the long run,” a note by ICICI Direct Research said.

Basanvahalli said subsidies for electric vehicles as part of the FAME-II policy should remain till EVs reach a double-digit penetration in the automobile market.

“The only request that we’ve had to the policymakers is today, the market penetration is about 5% for electric two-wheelers, and ideally, until it reaches a little bit of an inflection point, this is still nascent. As many as 800,000 vehicles are hardly anything in the Indian market, and we are just getting started. Supply chains are just getting started, and until penetration reaches a little bit of a critical mass, let’s say, at least a double-digit penetration in the market, a subsidy being there helps act as a catalyst, bring in customer confidence and takes away that one-time hit people have to take in the form of a higher upfront cost of batteries vis-a-vis IC-engines. However, internally, we know, and we believe that long-term subsidy is not a viable or sustainable solution as a country”, he said.