Escorts can go upto Rs 85: SP Tulsian

SP Tulsian, sptulsian.com is of the view that Escorts can give a return of about 25% or a price target of Rs 85 in next six months.

Tulsian told CNBC-TV18, “The Escorts seemed to be in the bottom or maybe settling at the lower level. The kind of run-up which we have seen in some of the stocks just to name them like BHEL, Exide, Sintex Industries or maybe the IVRCL, Nagarjuna Constructions these kind of stocks which were all written off or the continuous bearish view were being taken on these stocks. Probably Escorts also falls in the same category. If you see because of the merger of some group companies where the corporate governance issues were raised which were not so severe the stock has taken a beating and made a new 52-week low of about Rs 62-63 and now ruling close to about Rs 66 virtually at the low point of the year. He further added, “But if you go by the product profile they have the multiple product portfolio. They are making agri machineries, auto and rail products, construction equipments. We all know the products and all. Tractors, gensets, engines, earth moving equipments and all these products are made with four-five plants of which three or four plants are located in Faridabad and one in Uttarakhand. If you see the total product profile, the operating profits or maybe the recovery which the company has been witnessing for last couple of years I think that gives a lot of confidence. They have the ending of September but for first six months ending March 2012 company posted a top-line of close to about Rs 1,500-1,600 crore. Definitely the profit margins are under pressure. The PAT has been at Rs 24-25 crore, but I think it is likely to get ramped up in the second half because generally the tractor season is always good ahead of the monsoon and all.” “So I am quite positive on the stock taking the valuation call purely from a fundamental call that the stock can move to about Rs 85 in next six months or so because considering the equity base of Rs 100 crore, market cap of Rs 700 crore, enterprise value of less than Rs 1,500 crore, all these things and some of the analysts have been factoring the real estate valuation also of the company, because large chunk of the lands are held in Faridabad but I am not focusing too much on that, because land monetization may not be so easy, but purely going by the core business I think the company, if not in FY12 for September ending 12, at least in FY13 they should be able to post the EPS in double digit and the dramatic turn which we have seen in case of Arvind also, a similar story can get repeated in case of Escorts also. So taking the pure product profile of the company, the improvements in the working ahead the stock can give a return of about 25% or a price target of Rs 85 in next six months or so.”