Escorts a good bet at current levels, says Aashish Tater

Escorts is a good bet at current levels so one can buy it for long term perspective as there is limited downside and potential upside of almost 100%, says Aashish Tater, Head of Research, Fort Share Broking.

Tater told CNBC-TV18, “If you see the last four months drama on Escorts as a stock we feel that’s why the prices have come down and now since the management has bought shares at Rs 75-76 odd mark, roughly three months back almost 4 million shares we feel we are buying 25% discount. But I would like to take a snapshot that my quant predictors have been doing it. Last five years average lows have been somewhere around Rs 55.5.”
He further added, “Right now it is taking a technical dip and will again go to test that Rs 55 odd levels which is going to be incidentally a double bottom for the stock. Take a fundamental call on this particular stock. From next year perspective given on the expanded equity because of the merger we feel the company would do close to Rs 110 crore of profit on conservative side even though the cycle is down on the tractor space. On Rs 110 crore the EPS roughly works out to be roughly around Rs 9. Escorts have on an average traded at 10-10.5 times during the sentiment fundamental average of quartile one at 10 times. So if the cycle turns from next 15 months perspective which we feel will definitely move up after correcting this particular period because of the monsoon and other factors the price would be roughly around Rs 100.”
“From next 15 months perspective we are getting a management like Escorts where the management itself is buying, your stock seems to bottom out around at Rs 55 odd mark that is roughly 10% from here, you can make a spread strategy on this particular stock. You are getting a dividend of almost Rs 1.5 and all the negatives that are factored in from management perspective has already been priced in and we feel given the risk reward ratio this is going to be a very good bet at current levels and that’s why you have to buy a stock which is into a cyclical nature when the worst can be seen and have to sell the stocks when the best is coming by. So from that perspective we feel there is limited downside and potential upside of almost 100% from current levels from next 15-18 months perspective.” Disclosure: Safe to assume stocks recommended to clients. No personal position