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India Equity Research Reports, IPO and Stock News
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RATING....................................................................................... Changed from Buy to Hold
A n o t h e r r o u n d o f d i s a p p o i n t m e n t …
Escorts witnessed another muted performance with Q1SY12 results
coming below our expectations as the railway and ancillary division
reported losses. The topline came in at | 829.8 crore (I-direct estimate: |
894.9 crore) reflecting a decline of ~1% YoY. Tractor sales volumes for
the quarter stood at 16,606 units (up 9.2% YoY) but ASPs were up ~2.2%
sequentially. EBITDA margins contracted sharply to 4.0% (down 106 bps
QoQ) on account of the inability to pass costs coupled with lower
operating leverage. The RM cost/unit rose 2.1% QoQ and employee
expenses jumped ~20.2% QoQ pushing margins lower. Higher interest
cost was due to | 50 crore loan taken for ECL. On the tax front, there was
a write off of provision for doubtful debts leading to a PAT of | 10.9 crore
(down 57.3% YoY), which was well below our estimates (| 24.4 crore).
Highlights of the quarter
Escorts’ tractor sales witnessed lacklustre sales growth (up ~1.7% YoY)
to 16,606 units, which is below par compared to its peers (M&M tractor
volumes up ~12.2% YoY). This is reflective of Escort’s lack of presence in
the fast growing southern and western regions. Escorts derives ~45% of
its sales from the saturated northern region. We expect it to grow ~7-9%,
going ahead. The management is confident of ~20% growth in the
southern and eastern geographies. However, we do not share the same
enthusiasm and have not factored in the same in our estimates. The high
margin (~20%) railway equipment division’s (RED) EBIT slipped into loss
of | 0.6 crore against a profit of | 10.9 crore in Q4SY11 owing to high
fixed cost, lower turnover and lack of order mobilisation. Also, the auto
ancillary division reported a net loss of | 4.97 crore.
V a l u a t i o n
We remain cautious on Escorts owing to sluggish demand scenario
thereby leading to lack of pricing power and have accordingly pruned our
estimates. The stock is currently trading at | 79, 6.8x SY13E EPS of | 11.7.
We have valued it on an SOTP basis with Escorts valued at 6x SY13E EPS
of | 11.7 and the subsidiary valued at | 3.2 to arrive at a target price of |
73. We have changed our rating on the stock to HOLD.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
RATING....................................................................................... Changed from Buy to Hold
A n o t h e r r o u n d o f d i s a p p o i n t m e n t …
Escorts witnessed another muted performance with Q1SY12 results
coming below our expectations as the railway and ancillary division
reported losses. The topline came in at | 829.8 crore (I-direct estimate: |
894.9 crore) reflecting a decline of ~1% YoY. Tractor sales volumes for
the quarter stood at 16,606 units (up 9.2% YoY) but ASPs were up ~2.2%
sequentially. EBITDA margins contracted sharply to 4.0% (down 106 bps
QoQ) on account of the inability to pass costs coupled with lower
operating leverage. The RM cost/unit rose 2.1% QoQ and employee
expenses jumped ~20.2% QoQ pushing margins lower. Higher interest
cost was due to | 50 crore loan taken for ECL. On the tax front, there was
a write off of provision for doubtful debts leading to a PAT of | 10.9 crore
(down 57.3% YoY), which was well below our estimates (| 24.4 crore).
Highlights of the quarter
Escorts’ tractor sales witnessed lacklustre sales growth (up ~1.7% YoY)
to 16,606 units, which is below par compared to its peers (M&M tractor
volumes up ~12.2% YoY). This is reflective of Escort’s lack of presence in
the fast growing southern and western regions. Escorts derives ~45% of
its sales from the saturated northern region. We expect it to grow ~7-9%,
going ahead. The management is confident of ~20% growth in the
southern and eastern geographies. However, we do not share the same
enthusiasm and have not factored in the same in our estimates. The high
margin (~20%) railway equipment division’s (RED) EBIT slipped into loss
of | 0.6 crore against a profit of | 10.9 crore in Q4SY11 owing to high
fixed cost, lower turnover and lack of order mobilisation. Also, the auto
ancillary division reported a net loss of | 4.97 crore.
V a l u a t i o n
We remain cautious on Escorts owing to sluggish demand scenario
thereby leading to lack of pricing power and have accordingly pruned our
estimates. The stock is currently trading at | 79, 6.8x SY13E EPS of | 11.7.
We have valued it on an SOTP basis with Escorts valued at 6x SY13E EPS
of | 11.7 and the subsidiary valued at | 3.2 to arrive at a target price of |
73. We have changed our rating on the stock to HOLD.
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