Buy Escorts; target of Rs 1300: ICICI Direct

ICICI Direct is bullish on Escorts has recommended buy rating on the stock with a target price of Rs 1300 in its research report dated July 28, 2020.

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July 30, 2020 / 04:02 PM IST

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ICICI Direct's research report on Escorts

Escorts reported relatively healthy Q1FY21 numbers. Total operating income was at Rs 1,062 crore, down 25.4% YoY. Within its segments, gross revenue from agri equipment machinery (EAM) i.e. tractors was at Rs 954 crore (down 12.7% YoY), tracking unchanged ASP QoQ (Rs 5.25 lakh/unit), 13.8% YoY decline in volumes to 18,150 units. Gross revenue from construction equipment (CE) de-grew 75.3% YoY to Rs 52 crore (volumes down 78% YoY to 234 units) while revenue from railway equipment (RED) was down 53.5% YoY to Rs 55 crore. Present railway order book of Rs 480 crore is expected to be executed in next 12-15 months. Margins fell 281 bps QoQ to 11.3% amid rise in all cost heads, with EAM EBIT margins down ~130 bps QoQ to 14.5%. Standalone PAT was at Rs 92.2 crore, up 5.3% YoY.

Outlook

Sales, PAT are expected to grow at 7.4%, 17.3% CAGR, respectively, in FY20P-22E. We value the company at Rs 1,300 on SOTP basis (21x P/E on core FY22E EPS, 20% discount on treasury shares) & maintain BUY. Bright tractor division prospects, healthy cash on books, strategic entry of Kubota are positives while improvement in CE division & RED order book execution are additional monitorables.

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