This midcap has more than doubled since January; Credit Suisse says buy to gain up to 30%

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Updated: December 1, 2017 5:17:56 PM

As the midcap indices have rallied by more than 30% in the year so far, there have been a few stocks which have more than doubled investor wealth since January.

Shares of Escorts Ltd returned a staggering 142% in the year so far. (Image: PTI)

As the midcap indices have rallied by more than 40% in the year so far, there have been a few stocks which have more than doubled investor wealth since January. The shares of Escorts Ltd, an Indian engineering company that operates in the sectors of agri-machinery, construction and material handling equipment has returned a staggering 142% in the year so far. Global research firm Credit Suisse has initiated coverage on the stock with an outperform rating. Credit Suisse says that the tractor cycle will remain strong for another two years, thus driving growth for the company. The research house expects the stock to hit a target price of Rs 900 per share. Escorts Ltd shares closed at Rs 689, down by more than 4.05% since yesterday’s close. Credit Suisse’s target price implies an upside of more than 30% from the current market prices.

Track live stock price: Escorts Ltd

Notably, Escorts Ltd is fourth-largest tractor manufacturer with niche construction equipment and railways business. Tractors account for around 80 percent of revenues and 95 percent of profit. Credit Suisse expects tractors volumes to grow at CAGR of 11 percent over FY17-21 and EBIT (earnings before interest and tax) margin to improve from 10 percent to 14 percent by FY20 According to the brokerage house, decline in tractor volumes, and lower activity in construction & railways are key downsides to the stock.

Credit Suisse observed that the company has turned around in the last few years by focussing on new products. Notably, Escorts Ltd reported a more than two-fold increase in its standalone net profit to Rs 77.56 crore for the second quarter ended September 30, riding on robust sales.

The company had posted standalone net profit of Rs 31.29 crore in the same period last fiscal. Revenue from operations came in at Rs 1,211.69 crore. It was Rs 982.7 crore in the same quarter last fiscal. “The figures are not comparable due to GST implementation from July this year,” the company had said in a statement. “Sustained economic focus and support to farm mechanisation, agro innovation and smart city infrastructure is a strong push to the industry and market demand,” Escorts Chairman Rajan Nanda had said.

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