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Escorts -Business growth positive, costs a concern…
Escorts reported its Q1SY11 results that were a mixed bag with
positives of topline growth being eaten away through operative
declines. On the topline front, it reported | 837.7 crore (I-direct
estimate: | 804.5 crore) mainly driven by 20.4% YoY volume growth at
16,350 units and realisations improvement of 19.5% YoY due to
improvement in product mix towards the higher yielding segment.
EBITDA posted a disappointment with higher input costs per vehicle
(5.2% QoQ) that could not be mitigated due to lack of price hikes.
However, another margin dampener came through the | 55-crore
increase in trading goods towards the Tanzanian government deal that
had low margins and was part of the | 185-crore deal structure. PAT
was reported at | 25.5 crore supported with lower tax rate on the back
of higher R&D expenditure and prior provisions. Construction subsidiary
ECEL posted a topline of | 166 crore and EBITDA margin of 4.2%.
Highlights of the quarter
Escorts’ tractor sales continued the strong volume up-tick with quarterly
sales of 16,350 units (20.4% YoY jump) on the back of increasing demand
in rural markets and improving traction in the industrial segment. RM
prices through steel and rubber have increased (5.3% QoQ/per unit),
which would be absorbed with a 3-4% hike through January - February
2011. The margin slide was also accentuated with the bought out portion
of the Tanzanian order in which it had to supply 1830 tractors. Of this
1430 was to be from its stable of Farmtrac variant and the rest would be
part of trading business that had very low margins thereby leading to | 55
crore in the same. On the other business front, railways and auto-parts
business has been facing headwinds due to business hassles in both.
Valuation
We have factored in a strong performance on the agri-machinery front
and expect the operational performance to improve henceforth. The stock
is trading at | 119, 6.9x FY11E consolidated EPS of | 17.1 and 5.8x FY12E
consolidated EPS of | 20.5. We value it on SOTP basis with Escorts
valued at 7x SY12E EPS of | 19.0, ECEL is valued at 2x SY12E EPS of | 1.5
to arrive at a target price of | 136. Our target price of | 136 implies 14%
upside. We have changed our rating from STRONG BUY to BUY.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Escorts -Business growth positive, costs a concern…
Escorts reported its Q1SY11 results that were a mixed bag with
positives of topline growth being eaten away through operative
declines. On the topline front, it reported | 837.7 crore (I-direct
estimate: | 804.5 crore) mainly driven by 20.4% YoY volume growth at
16,350 units and realisations improvement of 19.5% YoY due to
improvement in product mix towards the higher yielding segment.
EBITDA posted a disappointment with higher input costs per vehicle
(5.2% QoQ) that could not be mitigated due to lack of price hikes.
However, another margin dampener came through the | 55-crore
increase in trading goods towards the Tanzanian government deal that
had low margins and was part of the | 185-crore deal structure. PAT
was reported at | 25.5 crore supported with lower tax rate on the back
of higher R&D expenditure and prior provisions. Construction subsidiary
ECEL posted a topline of | 166 crore and EBITDA margin of 4.2%.
Highlights of the quarter
Escorts’ tractor sales continued the strong volume up-tick with quarterly
sales of 16,350 units (20.4% YoY jump) on the back of increasing demand
in rural markets and improving traction in the industrial segment. RM
prices through steel and rubber have increased (5.3% QoQ/per unit),
which would be absorbed with a 3-4% hike through January - February
2011. The margin slide was also accentuated with the bought out portion
of the Tanzanian order in which it had to supply 1830 tractors. Of this
1430 was to be from its stable of Farmtrac variant and the rest would be
part of trading business that had very low margins thereby leading to | 55
crore in the same. On the other business front, railways and auto-parts
business has been facing headwinds due to business hassles in both.
Valuation
We have factored in a strong performance on the agri-machinery front
and expect the operational performance to improve henceforth. The stock
is trading at | 119, 6.9x FY11E consolidated EPS of | 17.1 and 5.8x FY12E
consolidated EPS of | 20.5. We value it on SOTP basis with Escorts
valued at 7x SY12E EPS of | 19.0, ECEL is valued at 2x SY12E EPS of | 1.5
to arrive at a target price of | 136. Our target price of | 136 implies 14%
upside. We have changed our rating from STRONG BUY to BUY.
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