Buy Escorts; target of Rs 1071: Cholamandalam Securities

Cholamandalam Securities' research report on Escorts

In 1QFY19, Escorts reported strong set of numbers. Revenue grew by 32.3%YoY to INR 15,113mn led by growth (25% YoY) in Agri Machinery products segment due to strong tractor growth. Construction equipment revenues grew 50% YoY led by robust infrastructure demand EBITDA grew by 90% YoY to INR 1,855mn. EBIDTA margins improved sharply 374 bps YoY to 12.3% led by robust top-line growth coupled with low margin base of corresponding quarter. The Agri Machinery segment EBIT margins came in at 14.2 %( +340bps YoY), while the Construction segment EBIT margins rose to 2.4% (+450 bps YoY). PAT grew by 91% YoY to INR 1,196mn. PAT margin stood at 7.9%.

Outlook

At CMP, the stock is trading at P/E of 16.4X/14.3x on FY19E/FY20E EPS, respectively. We arrive at a revised price target of INR 1,071 based on P/E of 17x FY20EPS and maintain a BUY rating on the stock.