Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Mr. O.K. Balraj - CFO, Escorts Ltd, shared his outlook on the industry and
company.
Key highlights
n Tractor business: 3QSY11 volumes disappointed due to two reasons - demand
slowdown in North (single digit volume growth) and impact of price hike implementation
(~4% or Rs 16,000 announced in April 2011). This resulted in premium pricing vis-àvis
competition. Post the price hike of ~2% by competition, there is price parity in the
market
n Key markets for the company (Punjab, Haryana and UP - market share of 26-27%)
witnessed single digit growth in 3QSY11. It expects demand to bounce back driven by
festival season sales and good crop harvest.
n Company expects to maintain a run rate of 6,000 tractors per month. This should lead
to EBITDA margins of ~8%. Operating leverage benefits can potentially lead to ~10%
EBITDA margins with volumes of ~6500 per month. Escorts is targeting 70,000 -
75,000 tractor volumes for SY12.
n It expects exports to moderate in SY12 after strong growth last year due to significant
order from Tanzania. It is targeting new geographies like Burma etc to drive exports
and expects a run rate of ~100 tractors per month for SY12.
n Interest rates to not impact demand. Most of the tractor sales are financed at subsidized
rates of 7 - 8%.
n Railway business: is gaining momentum. Escorts has tied up with DACO (Czech.
Company) for supplying brakes to Indian railways. Another potential tie up with
Honeywell is on track with a prospective market size of Rs 1.6bn
n Auto component business: Expects it to break even by FY12. Has appointed business
head from Tata Autocomp. The division has started supplying struts, shock absorbers
to M&M. Current capacity stands at 0.4mn units (capacity utilization ~50%).
n Escorts construction equipment subsidiary: Recently introduced back hoe loader
has been well received with a run rate of 75 units per month. Company targets sales
of ~800 units for FY12. Escorts is still a marginal player in this segment with the
market leader (JCBL) selling ~18,000 units per year.
Valuations
The stock has underperformed significantly over the past few quarters due to continuous
disappointment on margins. We expect performance to improve with up tick in volumes,
benefit of price hikes and stable commodity costs (with a lag of 1-2 months). Stock is
currently trading at attractive (trailing) valuations of 0.6x P/BV and 0.1x net D/E based on
SY10 financials adjusted for revaluation reserves. However, volume up tick and margin
expansion is likely to be key triggers for stock performance in the immediate future.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Mr. O.K. Balraj - CFO, Escorts Ltd, shared his outlook on the industry and
company.
Key highlights
n Tractor business: 3QSY11 volumes disappointed due to two reasons - demand
slowdown in North (single digit volume growth) and impact of price hike implementation
(~4% or Rs 16,000 announced in April 2011). This resulted in premium pricing vis-àvis
competition. Post the price hike of ~2% by competition, there is price parity in the
market
n Key markets for the company (Punjab, Haryana and UP - market share of 26-27%)
witnessed single digit growth in 3QSY11. It expects demand to bounce back driven by
festival season sales and good crop harvest.
n Company expects to maintain a run rate of 6,000 tractors per month. This should lead
to EBITDA margins of ~8%. Operating leverage benefits can potentially lead to ~10%
EBITDA margins with volumes of ~6500 per month. Escorts is targeting 70,000 -
75,000 tractor volumes for SY12.
n It expects exports to moderate in SY12 after strong growth last year due to significant
order from Tanzania. It is targeting new geographies like Burma etc to drive exports
and expects a run rate of ~100 tractors per month for SY12.
n Interest rates to not impact demand. Most of the tractor sales are financed at subsidized
rates of 7 - 8%.
n Railway business: is gaining momentum. Escorts has tied up with DACO (Czech.
Company) for supplying brakes to Indian railways. Another potential tie up with
Honeywell is on track with a prospective market size of Rs 1.6bn
n Auto component business: Expects it to break even by FY12. Has appointed business
head from Tata Autocomp. The division has started supplying struts, shock absorbers
to M&M. Current capacity stands at 0.4mn units (capacity utilization ~50%).
n Escorts construction equipment subsidiary: Recently introduced back hoe loader
has been well received with a run rate of 75 units per month. Company targets sales
of ~800 units for FY12. Escorts is still a marginal player in this segment with the
market leader (JCBL) selling ~18,000 units per year.
Valuations
The stock has underperformed significantly over the past few quarters due to continuous
disappointment on margins. We expect performance to improve with up tick in volumes,
benefit of price hikes and stable commodity costs (with a lag of 1-2 months). Stock is
currently trading at attractive (trailing) valuations of 0.6x P/BV and 0.1x net D/E based on
SY10 financials adjusted for revaluation reserves. However, volume up tick and margin
expansion is likely to be key triggers for stock performance in the immediate future.
No comments:
Post a Comment