Buy Escorts; target of Rs 1442: Emkay Global Financial
Emkay Global Financial is bullish on Escorts has recommended buy rating on the stock with a target price of Rs 1442 in its research report dated November 03, 2020.
November 11, 2020 / 01:58 PM IST
Emkay Global Financial's report on Escorts
Q2FY21 revenue grew strongly by 24% to Rs16.4bn, above the estimate of Rs15.3bn, mainly due to better tractor realizations. We expect positive momentum to continue in tractor volumes with a 5% CAGR over FY20-23E (4% CAGR earlier). OPM expanded notably by 880bps to 18.3%, above the estimated 12.6%, owing to better mix, cost controls and lower marketing/administration expenses. As some of these factors are unsustainable, margins are likely to taper ahead. Led by higher volume and margin assumptions, we upgrade FY21/22/23 EPS estimates by 33%/13%/7%. Post revision, EPS growth is expected at an 18% CAGR over FY20-23E. Average ROCE is expected at 20%, with FCF of Rs4.1bn/year over FY21-23E.
We await details of new investments of Rs10bn in tie-up with Kubota, which could provide triggers for medium-term growth. Retain Buy rating with a TP of Rs1,442 (Rs1,256 earlier), based on 16x FY23E core EPS (Sep’22E earlier).
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