Escorts rallies 5%, hits record high on healthy outlook in current fiscal

 Shares of Escorts moved higher by 5 per cent to Rs 1,350, also its fresh record high, in the intra-day trade on the BSE on Monday on expectation of better-than-expected demand for tractors in the domestic market in the current fiscal. This demand improvment, analysts say, could translate into good revenue growth for the company.

The stock surpassed its previous high of Rs 1,343, touched on September 30, 2020. In the past one year, it has zoomed 106 per cent as compared to a 5.3 per cent rise in the S&P BSE Sensex.

Escorts' management stated that the overall rural sentiment is positive because of the record output of Rabi crop along with better realization, strong Kharif sowing season and easy availability of retail finance. Furthermore, the management expects demand momentum to continue with supply chain issues ironing out. Besides, the current inventory at channel level is very low and re-stocking will also aid in volume growth in the coming quarters.

"Expanding market presence across domestic and international markets, combined with enhanced product offerings in its three core businesses would be the key driver for medium to long term growth. Outlook for the construction equipment (CE) business is also improving with ramp up in infra activities. Improving cost structure in the construction equipment business, better traction in the high-margin railway business, are likely to help to protect margins. No major capex in the near-term and purchase of stake by Kubota will improve cash flows and strengthen its Balance Sheet," analysts at Dolat Capital said in September quarter result update.

"The company's domestic market share increased to 11.6 per cent in fiscal 2020 from 10.8 per cent in fiscal 2018. Overall, Escorts revenues are expected to register 5-6 per cent growth in fiscal 2021, and 8-10 per cent over the medium term with steady growth across business segments," Crisil said in recent rationale.

Performance of Escorts' tractor business is closely correlated to economic activity in rural markets and its performance has benefitted from higher rural demand for tractors.

"The rural demand continues to remain positive led by lower base of last year, pent-up demand from Covid-19 related lockdowns, timely and widespread monsoon, record Rabi crop production, early Kharif sowing and good availability of retail finance. That said, material increase in covid-19 afflictions in rural markets and its impact on economic activity, and tractor demand will remain a key monitorable," the rating agency said.

Escorts Q3 net profit up 9% to Rs 153 crore, revenue dips to Rs 1,633 crore

Farm equipment and engineering products maker Escorts Ltd on Wednesday reported a 9.27 per cent increase in its net profit to Rs 153.1 crore for the third quarter ended December 31, 2019.

The company had reported a net profit of Rs 140.1 crore for the same period of the previous financial year.

Revenue from operations, however, declined to Rs 1,633.4 crore during the October-December quarter as against Rs 1,655.1 crore in the corresponding period last fiscal, Escorts Ltd said in a statement.

"We are continuing our journey of providing unique and innovative technology solutions for maximising agriculture yield, bring in efficiency in the construction equipment space and make rail transport safer," Escorts Chairman and Managing Director Nikhil Nanda said.

The company's investment in new product development, R&D and wider distribution is in line with the enhanced customer experience that it has committed to offer to create value for customers across domestic and export geographies, he added.

"As the nation is inching towards a new budget focus, we are sure with enhanced central focus on agriculture and infrastructure, we will be able to play a larger role in national growth and development," Nanda said.

Escorts shares on Wednesday ended 2.84 per cent higher at Rs 748.20 apiece on the BSE.

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.

Escorts scrip bounces back to register 19% rise on seasonal tractor demand

Even as auto stocks continue to feel the pressure of falling volumes and muted outlook, the Escorts scrip has bounced back over the past three weeks to register gains of 19 per cent. Led by seasonal demand for tractors, the company was the only one in the listed space to report year-on-year (YoY) volume growth in September. Even as the sector’s volumes fell by 1 per cent over the year-ago period due to heavy rains, Escorts reported 2 per cent increase. The near-term outlook for the sector remains strong.

Naveen Kumar Dubey and Swati Singh of Narnolia Financial Advisors believe that good monsoons, reservoir levels, and crop prices will help improve demand sentiment in the festive season for tractors. Volumes in the sector are looking up after two consecutive quarters of decline. This should help Escorts, which derives over 75 per cent of its revenue from the sale of tractors. In addition to festival demand, growth for the company is expected to come from new hybrid technology products launched last month. Further, the company has been gaining market share over the past six months, with its sales falling less than that of the industry. The company reported a 10 per cent decline in the first half of the financial year, while some of its peers have recorded a fall in excess of 11 per cent.

In addition to volume trends, the next trigger for the stock would be the September quarter results. While tractor volumes in the quarter were down 6 per cent, revenue decline is expected to be limited to 3 per cent, given the improvement in realisations on the back of price hikes taken earlier. Margins are expected to fall 150 basis points YoY to under 10 per cent due to inferior product mix, higher incentives, or promotional expenses. The Street will also keep an eye out for demand situations in the construction equipment segment and order book execution in the railways division.

With improvement in volumes in the second half led by good monsoon and benefits from a cut in corporate taxes, most brokerages have increased their earnings per share estimates by 10-20 per cent over 2019-20 and 2020-21. Given the triggers, especially in the tractor segment, investors can add the stock to their portfolios.

Escorts Q4 net profit up 8% at Rs 121 cr, revenue rises by Rs 1,631 cr

Engineering and farm equipment maker Escorts Tuesday said its net profit rose 7.8 per cent to Rs 121.35 crore for March quarter 2019, aided by robust tractor sales.

The company had reported a net profit of Rs 112.54 crore for the same period of previous fiscal.

Revenue from operations rose to Rs 1,631.66 crore for the period under review as compared with Rs 1,436.10 crore in the fourth quarter of 2017-18, Escorts said in a regulatory filing.

The company's tractor sales for fourth quarter stood at 25,136 units, up 6.7 per cent from the same period of 2017-18.

For 2018-19, the company reported a net profit of Rs 484.91 crore, up 40.7 per cent as compared with Rs 344.72 crore in 2017-18.

Revenue from operations stood at Rs 6,196.36 crore in 2018-19. It stood at Rs 5,015.97 crore in 2017-18.

"Escorts is committed to providing state of the art technology and unique engineering solutions for mechanised and innovative agriculture solutions, well supported infrastructure and safe rail transport," Escorts Chairman and Managing Director Nikhil Nanda said.

The company will continue to bring in new technologies with a blend of frugal engineering and global technology collaborations for domestic and global markets, enabled by strong product mix and expanded distribution network, he added.

"Our emerging businesses like crop solutions rental services, aggregation of tractors for wider usage will provide strong impetus and farmer access to modern agriculture practices," Nanda noted.

The company's board Tuesday recommended a dividend of Rs 2.50 (25 per cent) per share or Rs 10 each for 2018-19.

The board also appointed Sunil Kant Munjal as independent director for a period of five years.

Escorts shares Tuesday ended 2.96 per cent down at Rs 645 apiece on the BSE.