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.
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.
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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