Escorts

Impossible to pass on 100% price increase – Escorts

 Update on the Indian Equity Market:

On Tuesday, Nifty closed in the green at 15,108 (+1.2%). Among the sectoral indices, Auto (+3.2%), Media (+1.7%), and Metal (+1.7%) closed higher. PSU Bank (-1.3%), Pharma (-0.2%), and FMCG (-0.2%) closed in the red. M&M (+5.8%), Bajaj Auto (+5.2%), and Titan (+5.0%) were the top gainers. Bharti Airtel (-2.3%), ITC (-1.1%), and Coal India (-0.9%) were among the top losers.

Excerpts of an interview of Mr. Bharat Madan, Group CFO, Escorts Ltd with CNBC-TV18 dated 17th May 2021:

  • Speaking about the impact on demand, Mr. Bharat Madan said the impact of the 2nd wave is serious.
  • On the rural side, things are better as compared to urban. The rural segment is expected to do well led by pent-up demand.
  • Sowing starts from mid of May and goes on till July, farmers don’t require tractors for sowing. He said even if the situation normalizes in June then demand would be back for tractors.
  • The channels have opened, but rising infection level is impacting the demand.
  • For FY22E, the situation is dynamic and depends on how the month of June shapes up.
  • Speaking about commodity prices, he said the raw material prices witnessed steep inflation of ~7-8%. The company passed 2 price increases of about ~4-5%.
  • There is further pressure in 1QFY22E, and passing 100% price hikes is not possible considering the current demand situation.
  • The company will take another price hike in Q1FY22E.
  • Speaking on exports, he said the JV has started producing tractors (Kubota tractors). The JV will start producing tractors with the Escorts brand from 2QFY22E.
  • The new JV will add a capacity of 30,000 units.
  • The exports have shown 30% volume growth in the last few weeks. The exports will a focus area going ahead.

 

Asset Multiplier comments:

  • We believe rising raw material prices will impact EBITDA margins in the near term, and it will be difficult to pass on the entire cost to the customers.
  • We also believe rural India is less affected as compared to urban areas and a good monsoon along will government measures might bring back the demand for tractors if the situation normalizes by May end.

 

Consensus Estimate: (Source: market screener website and Investing.com websites)

  • The closing price of Escorts Ltd was ₹ 1,178 as of 18-May 2021.  It traded at 15x/12x the consensus Earnings per share estimate of ₹ 81.2/94.9 for FY22E/FY23E respectively.
  • The consensus average target price is ₹ 1,452/- which implies a PE multiple of 15x on FY23E EPS of 94.9/-.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

Tractor volumes show record growth, Momentum expected to continue: Escorts

Update on Indian Equity Market:

After yesterday’s rout markets traded flat to end the day as Nifty closed the day 45 points lower at 14,683.  Within the index, ADANIPORTS (+12.6%), TATACONSUM (+4.6%), and ASIANPAINT (+4.0%) were few of the gainers while POWERGRID (-2.3%), GRASIM (-1.3%), and EICHERMOT (-1%) led the losers. Among the sectoral indices, PHARMA (+1.8%), METAL (+1.4%), and REALTY (+1.2%)  led the winners while BANK (-0.5%), PRIVATE BANK (-0.4%), and MEDIA (-0.3%)  led the losers. 

Excerpts of Interview with Bharat Madan, Group CFO of Escorts Ltd. with CNBC-TV18 dated 5th April 2021:

  • Escorts posted very strong 10 percent tractor sales growth in March compared to the previous month. FY21 ended on a strong note with total tractor sales rising 24 percent vs FY20.
  • Escorts achieved an annual production level of 100,000 units for the first time in its history on the back of robust growth in sales despite the Covid-19 pandemic.
  • The rural sentiment is expected to be strong after a good Rabi season and a favorable monsoon outlook.
  • Demand is expected to grow for the next 6 months on account of expansion in South India.
  • Rising Covid-19 cases has not yet impacted demand but remain a concern. However, it is not expected to hamper any supply-side considerations.

Asset Multiplier Comments:

  • The Company is witnessing a strong demand on account of economic recovery and the company is poised to continue this upward trajectory for the upcoming 2 quarters.
  • Overall, the outlook for the auto industry is favorable and the effect of supply chain issues seems to be muted so there’s scope for sustained growth.

Consensus Estimates (Source: market screener website):

  • The closing price of ESCORTS was ₹ 1,223/- as of 06-April-2021.  It traded at 15x/ 13x the consensus EPS estimate of ₹ 84/ 94 for FY21E/22E/23E respectively.
  • The consensus price target is ₹ 1470/- which trades at 16x the EPS estimate for FY23E of ₹ 94/-

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

 

Expecting highest numbers in 3QFY21 – Escorts

Update on the Indian Equity market:
On Monday, the Indian equity markets witnessed the biggest single-day decline in seven months as investors were worried due to the spread of a new strain of the Covid-19 in parts of the UK. The Nifty50 ended the day at 13,328 (-3.1%). While none of the sectoral indices ended with gains, PSU BANK (-6.9%), MEDIA (-6.2%), and METAL (-5.5%) led the losers. Among the Nifty50, none of the stocks ended in the green, and TATAMOTORS (-9.5%), ONGC (-9.4%), and GAIL (-8.4%) led those that ended in the red.

Excerpts of an interview of Mr. Bharat Madan, Group CFO, Escorts with CNBC TV18 on 18th December 2020:
• In the last 2months, demand was quite good due to the festive season in October and November. In October, the industry growth was close to 7-8 percent and in November the growth was much higher. He expects channel filing to happen in December. Though the retail numbers may not be as strong as in the festive months, he expects this quarter to deliver one of the highest numbers the industry would have ever done.
• Talking about guidance for FY21E, he said the overall industry growth in 8months of FY21E is about 15% and expects mid-teens growth for the company.
• There were some supply issues due to the farm protests but the company has been able to manage the supply.
• The demand for their products comes majorly from the states of UP, Bihar, Rajasthan, Maharashtra, Telangana and Andhra Pradesh. He doesn’t foresee any major demand problems due to the ongoing farm protests.
• In Punjab and Haryana, farmers shift to tractors with higher horsepower (HP) but the volumes are stagnant.
• Talking about input prices, Escorts has taken a price increase after the festive season to pass on the inflation. There could be another price increase in the next quarter. Despite passing on the increased raw material price to consumers, this still impacts margins.
• Supplies from Kubota joint venture (JV) have begun, and he expects export orders to pick up.
• The target for exports for FY21E is 4000-4500 tractors but there are some challenges from container supplies causing delays in orders.
• He expects margins in 3QFY21 to be at the same level as 2QFY21. The impact of cost increases will get neutralized due to the operating leverage from higher volumes.

Consensus Estimate: (Source: market screener and investing.com websites)
• The closing price of ESCORTS was ₹ 1,242/- as of 21-December-2020. It traded at 19x/ 17x/ 15x the consensus earnings estimate of ₹ 66/ 74/ 85 per share for FY21E/FY22E/FY23E respectively.
• The consensus target price of ₹ 1,257 implies a PE multiple of 15x on FY23E EPS of ₹ 85/-.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”