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India Equity Research Reports, IPO and Stock News
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W h e n w i l l w i n d s o f c h a n g e b e c k o n f o r E s c o r t s ?
Escorts announced its Q4SY11 results that were well below our
expectations with the topline coming in at | 773.0 crore reflecting a
decline of 15.0% YoY (I-direct estimate: | 811.3 crore). Tractor sales
volumes were clocked at 15,203 units (up 8.7% YoY) while adjusted ASP
rose ~8.4% YoY. EBITDA margins were below expectations at 5.1% due
to expected higher other expenses of | 110.5 crore as higher discounts,
ad spends and director remuneration accounted for the same. On the
positive front, it managed to control costs on the operations front after
four consecutive quarters of cost rise as cost per vehicle declined ~2%
QoQ to 3.3 lakh. The PAT came in at | 8.8 crore, which was below our
estimates owing to exceptional loss of | 9.9 crore, which was created as a
provision for doubtful debtors.
Highlights of the quarter
Escorts’ tractor sales have witnessed a volume increase of ~8.7% YoY at
15,203 units, which is below par compared to its peers (M&M’s tractor
volumes were up ~26% YoY) mainly due to a limited presence in the
fastest growing southern and western markets. Competitors like M&M
and John Deere have higher penetration in these areas. In the past, the
inability to control cost on the core business front has been a margin
dampener. However, after four successive quarters, it has witnessed a
trend reversal with cost per vehicle declining ~2% QoQ. The railway
equipment business performed well in Q4SY11 posting revenue of | 55.3
crore (flat YoY) and EBIT margins of 19.6% (up 810 bps YoY). The
construction equipment business (ECEL) posted revenue growth of ~60%
YoY at | 251.5 crore and margin improvement of ~100 bps on EBITDA.
V a l u a t i o n
We have factored in continuing market share pressures and slow growth
in the next fiscal improving towards SY13E. The previous weak operating
performance has led to multiples de-rating of the stock, which we do not
expect to witness a change soon. The stock is currently trading at | 79,
5.7x SY13E EPS of | 13.8. We have valued the stock on an SOTP basis
with a target price of | 86. We have a HOLD rating on the stock.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
W h e n w i l l w i n d s o f c h a n g e b e c k o n f o r E s c o r t s ?
Escorts announced its Q4SY11 results that were well below our
expectations with the topline coming in at | 773.0 crore reflecting a
decline of 15.0% YoY (I-direct estimate: | 811.3 crore). Tractor sales
volumes were clocked at 15,203 units (up 8.7% YoY) while adjusted ASP
rose ~8.4% YoY. EBITDA margins were below expectations at 5.1% due
to expected higher other expenses of | 110.5 crore as higher discounts,
ad spends and director remuneration accounted for the same. On the
positive front, it managed to control costs on the operations front after
four consecutive quarters of cost rise as cost per vehicle declined ~2%
QoQ to 3.3 lakh. The PAT came in at | 8.8 crore, which was below our
estimates owing to exceptional loss of | 9.9 crore, which was created as a
provision for doubtful debtors.
Highlights of the quarter
Escorts’ tractor sales have witnessed a volume increase of ~8.7% YoY at
15,203 units, which is below par compared to its peers (M&M’s tractor
volumes were up ~26% YoY) mainly due to a limited presence in the
fastest growing southern and western markets. Competitors like M&M
and John Deere have higher penetration in these areas. In the past, the
inability to control cost on the core business front has been a margin
dampener. However, after four successive quarters, it has witnessed a
trend reversal with cost per vehicle declining ~2% QoQ. The railway
equipment business performed well in Q4SY11 posting revenue of | 55.3
crore (flat YoY) and EBIT margins of 19.6% (up 810 bps YoY). The
construction equipment business (ECEL) posted revenue growth of ~60%
YoY at | 251.5 crore and margin improvement of ~100 bps on EBITDA.
V a l u a t i o n
We have factored in continuing market share pressures and slow growth
in the next fiscal improving towards SY13E. The previous weak operating
performance has led to multiples de-rating of the stock, which we do not
expect to witness a change soon. The stock is currently trading at | 79,
5.7x SY13E EPS of | 13.8. We have valued the stock on an SOTP basis
with a target price of | 86. We have a HOLD rating on the stock.
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