Escorts trades weak, slips 3% ahead of December sales numbers

Shares of Escorts were trading 3 per cent lower at Rs 611 on Wednesday ahead of tractor sales numbers for December.

In November 2019, the agri-machinery segment of Escorts had registered 4.5 per cent decline in sales of tractors at 7,642 units. It had sold 8,005 units in November 2018. Domestic tractor sales in November 2019, dropped to 7,379 units against 7,641 units a year-ago, the company said in a regulatory filing.

During first eight months (April to November) of the financial year 2019-20 (FY20), Escorts had reported 7.3 per cent year-on-year (YoY) decline in total tractor sales at 59,324 units.

In the past one month, the stock has underperformed the market by falling 8 per cent, as compared to 1 per cent rise in the S&P BSE Sensex. Thus far in FY20, it slipped 23 per cent, against 7 per cent rise in the benchmark index.

However, analysts believe favourable monsoons in Escort’s key markets of North and Central zone would support its strong outperformance in tractor industry in 2HFY20 (October-March). Further, favourable geographical mix, strong marketing and distribution strategy would aid the company to improve tractor volumes going forward.

“Given the steep decline in Escorts’ tractor volumes in H1FY20, we expect whole-year growth to decline 5 per cent only, with some recovery in H2 due to a good monsoon and the low base. Also, we expect margin recovery due to lower steel prices and a change in the product mix,” analysts at Anand Rathi Share and Stock Brokers said in a company update.

Analysts at Reliance Securities expect domestic tractor industry to rebound in FY21E with flat YoY volume as against the current trend of double digit decline and expect it to record 11 per cent YoY growth in FY22E. Moreover, we expect growth to be more balanced across regions, going forward compared to current outperformance in Northern and Central regions, it added.

Escorts has diversified business in three different segments comprising -- Escorts Agri Machinery, Escorts Construction Equipment and Railway Equipment Division.