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C o r e o p e r a t i o n s c o n t i n u e t o r e m a i n w e a k …
Escorts reported its Q3SY11 results that were again below our
expectations with the topline at | 739.6 crore, down 18.0% YoY (I-direct
estimate: | 736.8 crore). The decline was led by lower tractor sales at
14,212 units (down 20.0% QoQ) even as blended realisations moved up
~2.2% QoQ. The disappointment came in again on the EBITDA margins
front at 4.6% (down ~180 bps QoQ) due to lack of costs management on
the operations front. The cost per vehicle moved up severely (4.6% QoQ)
this was due to a combination of higher input prices of steel along with
inefficient costs control measures. PAT came in at | 13.2 crore came in
below our estimates (|25.1 crore) due to weak operative performance.
Highlights of the quarter
Escorts’ tractor sales have witnessed a slump with volumes for Q3SY11 at
14,212 units (~20.7% YoY decline) as company lost market share in the
northern region(~1.5% YoY) due to increased penetration and product
launches by competitors like M&M ,John Deere and TAFE. On an overall
basis the company has a market share of ~12.5 %( down 1.5% on YoY
basis) as northern region (accounting ~60% of sales) has de-grown by
~25% fro Escort. The inability of cost control on the core business front
has been a huge dampener to the margins. The costs per unit have again
rocketed up 4.6% QoQ as Escorts has been unable to rationalise costs
through internal activities, thus without any price hike in Q3SY11 the
EBIDTA margins have declined ~180 bps QoQ. The management
commentary on the volume growth remains muted to negative in nature.
V a l u a t i o n
We have factored market share pressures emanating from increasing
competition and slow operational turnaround. The stock is trading at | 83,
6.9x SY12E EPS of | 12.5. We have valued it on an SOTP basis with
Escorts valued at 7x SY12E EPS of | 12.2, subsidiary valued at | 4.6 with a
target price of | 91. We maintain our HOLD rating on the stock with a 9%
upside potential. We suggest investors who entered at higher levels to
hold the stock however do not recommend fresh entry at these levels.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
C o r e o p e r a t i o n s c o n t i n u e t o r e m a i n w e a k …
Escorts reported its Q3SY11 results that were again below our
expectations with the topline at | 739.6 crore, down 18.0% YoY (I-direct
estimate: | 736.8 crore). The decline was led by lower tractor sales at
14,212 units (down 20.0% QoQ) even as blended realisations moved up
~2.2% QoQ. The disappointment came in again on the EBITDA margins
front at 4.6% (down ~180 bps QoQ) due to lack of costs management on
the operations front. The cost per vehicle moved up severely (4.6% QoQ)
this was due to a combination of higher input prices of steel along with
inefficient costs control measures. PAT came in at | 13.2 crore came in
below our estimates (|25.1 crore) due to weak operative performance.
Highlights of the quarter
Escorts’ tractor sales have witnessed a slump with volumes for Q3SY11 at
14,212 units (~20.7% YoY decline) as company lost market share in the
northern region(~1.5% YoY) due to increased penetration and product
launches by competitors like M&M ,John Deere and TAFE. On an overall
basis the company has a market share of ~12.5 %( down 1.5% on YoY
basis) as northern region (accounting ~60% of sales) has de-grown by
~25% fro Escort. The inability of cost control on the core business front
has been a huge dampener to the margins. The costs per unit have again
rocketed up 4.6% QoQ as Escorts has been unable to rationalise costs
through internal activities, thus without any price hike in Q3SY11 the
EBIDTA margins have declined ~180 bps QoQ. The management
commentary on the volume growth remains muted to negative in nature.
V a l u a t i o n
We have factored market share pressures emanating from increasing
competition and slow operational turnaround. The stock is trading at | 83,
6.9x SY12E EPS of | 12.5. We have valued it on an SOTP basis with
Escorts valued at 7x SY12E EPS of | 12.2, subsidiary valued at | 4.6 with a
target price of | 91. We maintain our HOLD rating on the stock with a 9%
upside potential. We suggest investors who entered at higher levels to
hold the stock however do not recommend fresh entry at these levels.
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