Escorts Ltd. -- Regional disparity affects volumes,:: Emkay

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Escorts Ltd.

Regional disparity affects volumes, Not Rated

NOT RATED

CMP: Rs79                                        Target Price: Not Rated

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n     Sharp drop in volumes 21%/20% YoY /QoQ results in EBITDA margins declining by 500/180 bps YoY/QoQ to ~4.6%. Margins are lowest in last 12 quarters (since Sep 2008)

n     Volumes affected by regional disparity due higher growth in Southern markets, where Escorts is a weak player. North and Central region witnessed subdued demand

n     Expect margins to bottom out with up tick in volumes and benefits of price hike and lower commodity prices (lag of ~1.5month)

n     Stock looks attractive with P/BV of 0.7x, net DE of 0.1x on SY10 financials after adjusting for revaluation reserve. However, volumes and margins up tick will be the key trigger