Reduce Escorts; target of Rs 1368: Dolat Capital Market
Dolat Capital Market recommended reduce rating on Escorts with a target price of Rs 1368 in its research report dated January 29, 2021.
February 03, 2021 / 04:49 PM IST
Dolat Capital Market's research report on Escorts
Escorts (ESC) reported strong all-round performance in Q3FY21. EBITDA jumped 72% YoY to Rs 3.64bn with significant margin expansion at 18% (+505bps YoY) on account of better mix and cost control measures. The net revenue grew 24% YoY to Rs 20.17bn led by 28% growth in Agri machinery products, 13% growth in construction equipment offset by 6% de-growth in railway equipment segment. Management stated that the overall rural sentiment is positive because of strong Rabi sowing and easy availability of retail finance. However, retail demand was subdued in December and January leading to channel inventory built up. We expect increase in channel inventory (~3-3.5 weeks) will put pressure on both dispatches and pricing in coming months. In addition, pick up in HCV volume to moderate high HP segment tractor volume. Construction equipment demand is picking up with revival in the macro-economic activities. The railway segment order book has been slower due to postponement of orders to FY22. However, management expects the situation to improve in coming months with resumption of normalcy.
We sense margin to taper off in the coming quarter due to sharp up move in commodity prices and normalization of product mix. Given the exhaustion of pent up demand, increasing channel inventory, input cost pressure and high base, we recommend to Reduce the stock with target price Rs 1,368 (based on 16x FY23E).
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