Greaves Cotton's Record Sales Mask Long-Term Profitability and Debt Concerns

Greaves Cotton, a small-cap player in the compressors, pumps, and diesel engines industry, has recently undergone an evaluation adjustment that reflects changes in its underlying financial metrics and market position. The company reported a notable performance in its latest quarter, achieving record net sales of Rs 822.83 crore and a peak PBDIT of Rs 45.74 crore. This performance indicates a strong operational capacity, particularly with an operating profit to net sales ratio of 5.56%.
However, the evaluation adjustment also highlights some long-term challenges. Over the past five years, Greaves Cotton has experienced a decline in operating profits, with a CAGR of -26.39%. Additionally, the company's ability to manage its debt is under scrutiny, as evidenced by a low EBIT to interest ratio of 1.24. The return on equity stands at 4.4%, suggesting limited profitability relative to shareholders' funds, and the stock is trading at a premium compared to its peers.

Despite generating a 26.04% return over the past year, the company has faced a significant drop in profits, which fell by 71.9%. This mixed performance, coupled with a modest stake held by domestic mutual funds, may indicate cautious sentiment regarding the stock's valuation and future prospects.

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