Buy Escorts; target of Rs 744: Cholamandalam Securities

Cholamandalam Securities' research report on Escorts

In 3QFY19, Escorts' revenue grew by 37.3%YoY to INR 16.5bn as against CSEC estimate of INR16.1bn on account of strong volume growth in agri-machinery and construction equipment segments. Domestic agri-machinery volume grew by 34.2% YoY and exports volume grew by 99.8% YoY. Agri-machinery segment reported revenues of INR12.9bn and an EBIT margin of 14.3%, down by 34bps YoY. The margins in this segment were impacted due to unfavorable product mix on account of higher sale of lower margin <40HP tractors. Construction equipment showed a robust growth of 44.1% YoY with revenues of INR 2.65bn on the back of 30% YoY volume growth. The EBIT margins in this segment stood at 3.5% up by 127bps YoY.

Outlook

We introduce and roll over our valuations to FY21E. At CMP, the stock is trading at P/E of 10.8X/10.4x on FY20E/FY21E EPS, respectively. We arrive at a revised price target of INR744 based on P/E of 12x FY21EPS (10 year average 1yr forward P/E) and maintain a BUY rating on the stock.

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Read More First Published on Mar 1, 2019 03:58 pm