Escorts reports tepid sets of results

Jainam Research | July 11, 2015, midnight

Escorts reported tepid set of results with topline (at INR 8888 mn) and bottomline (at INR 204 mn) coming in below our estimates due to increased sale of low HP tractors and ~3% decline in realisation for the CE segment. All the segments have registered degrowth in sales apart from the railway division. After almost 2 years of declining tractor sales, the industry is showing signs of recovery with South and Western markets growing almost 22% YoY. We maintain our BUY rating on the stock with target price of INR 180 based on 6.25x EV/EBITDA.


- Tractor Segment- Volume down 16%, Realisation flat


- Construction Equipment volume down 13%


- Performance of other segments


- EBITDA Margin down 84 bps


Outlook & Valuation


After almost 2 years of declining tractor sales, the industry is showing signs of recovery with South and Western markets growing almost 22% YoY. We expect tractor industry to grow at 17% in FY17E. The management's focus on increasing the sale of higher HP tractors is likely to improve the overall realization for Escorts. The outlook for its CE and Railway segment is also promising given the emerging opportunities in the respective sectors which should provide further boost to profitability. We expect top line & bottom line to grow at a CAGR of 6.9% & 51.9% respectively between FY15- 17E. We maintain our BUY rating on the stock with target price of INR 180 based on 6.25x EV/EBITDA.


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