Farm equipment manufacturer Escorts Ltd. might have witnessed de-growth in revenue in the April-June quarter but with rural demand gaining pace, brokerage firms are still bullish on the stock.
Farm equipment manufacturer Escorts Ltd. might have witnessed de-growth in revenue in the April-June quarter but with rural demand gaining pace, brokerage firms are still bullish on the stock. Escorts management said that the company reached 95% of capacity in June 2020, after operations were hot in April due to the complete lockdown. With the recent surge in supplies, Escorts has said that capacity will be restored to full potential in the month of August. The stock is currently trading up by 2% at Rs 1,184 per share, taking the stock 7% higher so far this week.
Sales might have been down but other income jumped 79% on-year helping net profits surge 5% from the previous year. Tractor segment revenue was down 12% on-year and construction equipment revenue tanked 75%. Railway segment revenues came in lower tracking weak demand scenario domestically. However, Escorts is being touted as the firm that is well placed to ride the demand tailwinds. “The domestic tractor segment is outpacing rest of the automotive space by a wide margin after lifting of nationwide lockdown,” said ICICI Direct in a note. Retail volumes in July are at around 20% higher than pre coronavirus levels, and up 9% on-year.
While Escorts continues to be favoured to benefit from the demand surge, the company continues to make inroads to newer geographies by focusing on channel expansion. “We build 5% tractor volume CAGR in FY20P-22E,” said ICICI Direct, while pinning a Buy rating on the scrip with a target price of Rs 1,300 per share. Tractors continue to dominate total sales with their share in total sales pie at 77% as of last fiscal year.
Escorts said that supply chains are expected to be restored by mid August. “The demand sentiment in the Tractor segment continues to be strongly driven by healthy crop output and reservoir levels,” said brokerage and research firm Narnolia in a recent report. “Going ahead we expect margins to be maintained over 12% on account of reduction in fixed cost. We largely maintain our FY21 EPS estimates. We value ESCORTS at 24x FY22e EPS to arrive at a target price of Rs.1215 and maintain ACCUMULATE,” the report added. Risks to the stock stem from the possibility of a slowdown in tractor demand and increase in commodity prices.
A believer in Escorts and its growth projections in Ace investor Rakesh Jhunjhunwala. The big bull of the Indian stock market holds a 7.42% stake in the company, owning 91 lakh shares of Escorts Ltd. Rakesh Jhunjhunwala has held the stock since 2014. Share price of Escorts Ltd has surged 113% from its March lows.
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