ICICI Direct recommended hold rating on Escorts with a target price of Rs 860 in its research report dated May 15, 2020.
ICICI Direct's research report on Escorts
Escorts reported a robust Q4FY20 performance despite 20% YoY fall in tractor volumes. Normalised EBITDA margins for the quarter were healthy at 12.1%, primarily tracking a better product mix, benign commodity prices and other cost efficiencies. Total operating income for Q4FY20 came in at Rs 1,381 crore, down 15.4% YoY. Within its segments, gross revenue from agri equipment machinery (EAM) was at Rs 1,058 crore; primarily tracking beat on ASPs. Tractor ASP for the quarter was at Rs 5.26 lakh/unit. EBITDA in Q4FY20 was at Rs 194.4 crore with corresponding PAT at Rs 140.4 crore.
Escorts has a healthy B/S with ~Rs 1000 crore of cash on books as of FY20 and ~Rs 1000 due to be received from Kubota in near term (FY21E). However, we await clarity on cash utilisation before upgrading the stock. Hence, we maintain HOLD on the stock valuing Escorts at Rs 860, using SOTP method, assigning 15x multiple to core FY22E EPS of Rs 50.3 and ascribing 25% holding company discount to its treasury shares in books.
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