Ambit Capital has recommended 'Buy' on Greaves Cotton with target price of Rs 178 as against current market price of Rs 122 in its report.

Commenting on the investment rationale, the stock broker said, "Greaves Cotton's management is guiding for a pick-up in the auto engine portfolio. Higher growth in the cargo vehicle segment (40% of total auto engines sold in FY15) would be driven by the recent softening of interest rates (YTD CY15 rate cut has been 75bps). Almost 80% of cargo vehicles are purchased on loans and hence any reduction in EMIs (fall-out of a rate cut) leads to replacement of old vehicles (replacement market is ~30% of the total market).

We reiterate our high conviction Buy. We factor in 23% adjusted EBITDA CAGR in FY15-17. At CMP, the auto business' low valuations (FY17E P/E of 11.7x, a 46% discount to peers) ignore the 21% margin and 30% RoE generated by this business."

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