GCL’s is focusing on becoming fuel agnostic through new business initiatives such as CNG engines and electric vehicles. These businesses are at still at an embryonic stage and developments in the e rickshaw and e 2 wheeler space are to be monitored. We expect revenues to grow at a CAGR of 9% over FY19-21E. At CMP, the stock is trading at P/E of 16.5X/13.8x on FY20E/FY21E EPS, respectively. We maintain a MARKET PERFORMER rating on GCL with a revised target price of INR 133, assigning a P/E of 15X on FY21 EPS. Risks: Downturn in the economy leading to lower auto engines volumes, a slowdown in infrastructure and industrial activities, lower than expected pick-up in new business.
GCL is currently trading at 14.5x and 13.2x FY20E and FY21E earnings respectively, which is at a discount to peers in the capital goods space.However, GCL’s growth outlook has remained subdued as it has 3W engine saleshave underperformed the Industry growth rate. We now value the stock at 14x FY21E EPS (earlier 15x FY21E), thus arriving at a price target of Rs 125 (Earlier Rs 156). In view of the modest upside, we maintain“ADD” rating. Key positive trigger going forward will be ramping up of its 200cc BSVI compliant CREST CNG engine volume (currently undergoing field trials).
New product range of high speed E-2-W vehicles with the launch of Zeal and expected launch of another two products at Ampere coupled with new business initiatives (CNG engines, and B2C business) would aid revenue growth and boost the share of non-auto segment. Also, aftermarket sales may provide the much needed growth uptick. We build in 8.7% revenue CAGR in FY19-21E. We value GCL base business at 16x FY21E EPS to arrive at | 145/share and revise our rating from HOLD to BUY.