Buy Escorts; target of Rs 345: Geojit BNP Paribas

Tractor segment which constitutes 80% of the revenue is likely to witness some sluggishness for H2FY17 due to slow down in the rural demand. We expect that the surprise move towards demonetisation will bring some disruption in the form of liquidity in the sector. Delay in the infrastructure spending could also bring some headwinds in the construction equipment sector, which constitutes 13% of the revenue. HIFY17 revenue growth was 16%YoY largely led by the robust volume growth of 22% from the tractors. We lower our volume estimate for H2FY17 for tractor equipments sale from 21% to 16% respectively.

At CMP EL is trading at P/E of 18.5x & 12.7x on FY17E & FY18E. Considering the near term headwinds on earrings growth, we lower our valuation to 15x from (Previously 17x) FY18E EPS with a revised target price of Rs 345 and maintain our rating as "Buy".