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ESCORTS LTD.
 
  

 

SHARETIPSINFO >>Research Reports >>ESCORTS LTD. > >> (04-12-2013)

 

LISTING
CMP
Rs 112
52 WEEKS HIGH/LOW
Rs 125.60 /Rs 48.40
FACE VALUE
Rs 10
PE RATIO
6
MARKETCAP
Rs 1, 430 crore
INDUSTY PE

10

FAIR VALUE
Rs 160

Theme:
Agriculture is showing good growth. This will benefit companies with exposure in the agriculture sector. Stock declined from Rs 160 to sub Rs 50 in 2010. The reason was the company’s deteriorating profitability. But from 2012 company’s financials started improving and hence it is now being reflected in the stock price.

COMPANY OVERVIEW:
The Escorts Group is an Indian multinational engineering conglomerate that operates in the sectors of agri-machinery, construction and material handling equipment, railway equipment and auto components. Headquartered in Faridabad, Haryana, the company was launched in 1944 and has operations in more than 40 countries.

Escorts Group was launched in 1944 by two brothers, Hari Nanda and Yudi Nanda, in the name of Escorts Agents Ltd. in Lahore. Escorts Limited was incepted in 1960 after the company set up its manufacturing base at Faridabad.

Exports:

Escorts exports tractors to North America, Africa and Europe. The company exports to over 15 countries worldwide.


Business area of the company:

Escorts Agri Machinery

The company manufactures tractor under the brand names of Escort, Farmtrac and Powertrac. EAM consists of four manufacturing plants that cover an area of 134,000 sq m. The company also has a plant in Poland, which is a 100% subsidiary and functions in the name of Farmtrac Europe.

Escorts Construction Equipment

The company manufactures and markets construction and material handling equipment like cranes, loaders, vibratory rollers, Backhoe Loader and forklifts. The ECE manufacturing and assembly facility is located in Faridabad.

Escorts Railway Products

 The company supplies air brake system, EP brake system, gearsand couplers, composition brake blocks, dampers and rubber components to Indian Railways.

Escorts Auto Products

The company manufactures auto suspension products such as shock absorbers, struts and telescopic front forks for the automotive industry. The manufacturing unit located in Faridabad.

Revenue Break up:


Agri Machinery

83%

Construction Equipments

9%

Railway Equipments

5%

Auto Ancillary

3%

 
Market Share in Tractor Industry:


M&M

40%

TAFE

25%

Escorts

12%

Sonalika

10%

John Deere

6%

Others

8%

Key Management Recent Developments:
New management has prepared a roadmap for improvement in the performance of the
Company which was as follows:

  1. Modification of product mix, undertaking technology and brand tie ups globally and by re engineering the company in order to reduce cost and promote efficiency.
  2. Focus on Higher HP tractor market which results in higher margins.
  3. Regular and timely introduction of new products.
  4. Focus on margin improvement than sales growth.
  5. To increase the EBITDA margin 3x in the next 3 year period.
  6. Focus on cost discipline (manpower and raw material front). The employee cost of the company as % of sales is currently one of the highest in the industry. On the raw material front as well company is targeting rationalization.
  7. To use only 2 plants as compared to 3 plants currently in order to save the cost and centralization of operations. The 3rdplant will become handy as and when opportunity arises. This will result in reduction in indirect cost and lead to improvement in margins.
  8. Increase the total capacity to 120,000 tractors as compared to current 95,000 tractors.
  9. Focus on domestic sales revamp and exports post improvement in domestic sales.
  10. The company’s capex plans include Rs 100 cr for tractor, Rs 10-15 cr for Construction equipment and Rs 10-15 cr on Auto products.

INVESTMENT RATIONAL:

  1. Improvement in the return ratio. Margins are increasing Quarter on Quarter basis.
  2.  Agri machinery business continues to remain the dominant segment for the company contributing nearly 83% of the revenues. Good monsoon has provided a boost for the overall tractor industry and after a sluggish last one year, volume growth is expected to remain in the range of 10-12%.
  3. New Product introduction.
  4. Increasing the dealer’s network.
  5. Took a price hike in Feb and May 2013.
  6. Focus on Higher HP tractor segment.
  7. Increased Tractor capacity utilization to improve margins.
  8. Railway Equipment Division (RED) margins to remain stable next quarter.
  9. Construction Equipment business to move in tandem with economic growth.

Risk & Concern:

  1. Any slowdown in the Indian economy will impact the performance of the company leading to fall in demand for tractors.
  2.  A significant increase in the cost of raw material will adversely affect the company’s margins.
  3. Monsoon remains the key driver as agric sector contributes 83% of the revenue.
  4. Delay in revival of construction equipment and auto component division can impact the overall performance of the company.
  1.  

TREND OF SHAREHOLDING PATTERN IN LAST 3 QUARTER:

Q2FY14

Q1FY13

Q4FY13

Q3FY13

PROMOTERS

41.97%

41.98%

41.98%

41.98%

FII

12.27%

12.08%

13.02%

12.18%

DII

4.66%

5.38%

3.86%

3.86%

 
FINANCIAL:

FY13

FY12

FY11

FY10

TOTAL INCOME

4203

3942

4123

3432

EXPENDITURE

-3884

-3711

-3914

-3133

PBIDTA

319

231

209

299

DEPRECIATION

-53.5

-48.42

-48.6

-53.2

PBIT

265.5

182.58

160.4

245.8

INTEREST

-81.7

-96.4

-37.2

-18

PBT

183.8

86.18

123.2

227.8

TAX

-15.5

-18.35

-15.3

-48.9

PAT

168.3

67.83

107.9

178.9

Key Highlights:

  1. Total Income increased by 7% over the last 4 years to Rs 4, 203 crore.
  2. PBIDTA grew at CAGR of 2% in the last 4 years to Rs 319 crore.
  3. PAT declined by 2% over the last 4 years.

RATIOS:
 

FY13

F12

FY11

FY10

EPS

13.73

5.53

8.80

14.59

PBIDTA MARGIN

7.58

5.85

5.06

8.71

NPM

4.00

1.72

2.61

5.21

INTEREST COVER

18.96

14.04

26.73

18.20

Key Highlights:

  1. EPS remained flat.
  2. PBIDTA margins saw sharp improvement in last 3 years from 5.85% to 8.71%.
  3. NPM improved from 1.7% to 5.2% in last 3 years.
  4. Interest cover remained flat.

COMPARISION OF Q2FY2013 WITH Q2FY2014:

Q2FY14

Q2FY13

% CHANGE

TOTAL INCOME

960

832

15.38

EXPENDITURE

-880

-776.5

PBIDTA

80

55.5

44.14

DEPRECIATION

-14

-13

PBIT

66

42.5

55.29

INTEREST

-18.3

-22

PBT

47.7

20.5

132.68

TAX

-4.66

-1.75

PAT

43.04

18.75

129.54

Key Highlights:

  1. In Q2FY14 Total Income grew by 15.4% to Rs 960 cr (YoY).
  2. In Q2FY14 PBIDTA grew by 44.1% to Rs 80 cr (YoY).
  3. In Q2FY14 PAT grew by 129% to Rs 43 cr (YoY).

VALUATION &OUTLOOK:
Stock is trading at 6X to FY14E EPS. We expect FY14E EPS to be at 20. We value the company at 8X, the Fair Value of the company comes at Rs 160.
The company is seeing a turnaround in the operation. The margins are improving and focus of the management is increasing on volume and profitability. We are hopeful that company is seeing good traction. The financials are seeing turnaround.

CONCLUSION:
Investors with 6-8 months time horizon could take position. Downside in the stock remains limited.

 

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