The deal values the remaining 64.2% stake of Greaves Cotton in GEM at Rs 2,398 crore. It forms two-third of Greaves Cotton’s market capitalization of Rs 3700 crore a day before the deal announcement. The implied valuation of the EV subsidiary is around 3.4 times sales, which is in line with the street’s estimates. The conventional auto and genset business of Greaves Cotton is valued at over Rs 40 per share while the EV subsidiary attracts a value of around Rs 130 per share.
The stock of Greaves Cotton has been on investors’ radar over the past few months given a direct proxy to the EV two-wheeler story. The retail shareholding in Greaves Cotton rose to 21.8% at the end of March 2022 compared with 18.4% a year ago according to the BSE.
The latest deal with ALJI will fund GEM’s expansion plans to win market share. Greaves Cotton has invested close to Rs 300 crore in the EV subsidiary and will invest around Rs 700 crore more to ramp up the installed capacity from the current 2.5 lakh vehicles per annum.
GEM sells EVs including two-wheelers under the brand Ampere, three-wheelers ELE, and auto rickshaw Teja. In FY22, it sold 51,794 and 10,348 two-wheelers and three-wheelers respectively, with over 100% year-on-year growth in each of the two categories. Ampere had a market share of 14.8% in May 2022 according to the data from Vahan, a vehicle registration portal managed by the government. The company expects to maintain at least 10% market share in the electric two-wheeler segment.
The share of the e-mobility business in Greaves Cotton’s total consolidated revenue rose to 38% at Rs 237 crore in the last quarter of FY22 compared with 6.6 % or Rs 15 crore in the first quarter of the fiscal year. The e-mobility business turned profitable in the last quarter of FY22.
On Thursday, Greaves Cotton’s stock gained nearly 13% in the opening trade after the deal announcement and closed the day 2% up at Rs 165 on the BSE.