The share price of Escorts has been treading positively and has clogged an annual return of 230.06% and analysts are seeing the positive trend being maintained. Much of this is to the cleaning up its act and also its balance sheet and focussing on its core activities. The company recorded a net profit of Rs 22 crore for the third quarter of the fiscal ending June 30, 2009, a rise of 2.39 times as against Rs 9 crore registered for the corresponding period of last fiscal. Over the years, the company has consistently grown its operating profit margins and from 5% levels in the first quarter of 2008-09, it is now more than 10.9%, claims the management. It has also increased its market share from 9% levels in 2005-06 to about 14% levels, reckon analysts. The growth in volumes, thanks to streamlining of activities, especially distribution, along with cost control seems to have caused this. Now, the management would be looking at extending its product lines in construction, mining equipment and railways areas. The company already has a product range spanning all segments of the tractor space, especially in the higher horse power segment. The over 41 horse power segment contributes nearly 53% of its market share.
Currently, the railway equipment business accounts for 7% of its revenues and is expected to grow as the Indian railways embarks on a Rs 4,680 crore expansion plan till 2012 to upgrade its systems. The railway businesses, while small at the moment, has operating profit margins of around 25%, say analysts at Edelweiss Securities. Escorts will also manufacture backhoe loaders that form a significant part of the construction sector. Importantly, the management has cleaned up its balance sheet by selling assets in unrelated areas like telecom. The company had a substantial backlog of greater than six months debtor days and higher loans and advances. Debtor days over six months were in excess of Rs 200 crore, while loans and advances soared, say analysts at Edelweiss. The quality of investments in subsidiaries was a matter of concern. It is now expected to have a much healthier balance sheet. Going ahead, expansion in the construction sector and the railways segment would derisk its business.
