MOSL: ESCORTS (Neutral)-Above estimates, cost control, operating leverage drives margin
Escorts: Above estimates, cost control, operating leverage drives margin
(ESC IN, Mkt Cap USD1b, CMP INR626, TP INR715, 14% Upside, Neutral)
- Overall performance above estimate: ESC’s revenue increased 15.4% YoY (-7.5% QoQ) to INR14b (est. INR12.8b). Tractor, construction equipment and railway businesses grew by 7%, 51% and 45%, respectively, led by volume and realizations growth. Tractor segment realizations grew 3.2% QoQ (+3.7% YoY) to INR495.9k (est. INR475.8k) largely led by price hikes and higher share of implements. EBITDA margin came in high at 11.3% (est. 10.5%) as impact of higher raw material (RM) cost (+80bp YoY). Other expense (+210bp YoY) was offset by lower staff cost (-250bp YoY). Higher other income of INR221m (est. INR175m) due to MTM gain led to adj. PAT growth of 24.9% YoY (-14.1% QoQ) to INR1b (est. INR851m). For 1HFY19, revenue/EBITDA/PAT grew 23%/44%/54% implying residual growth of 14%/22%/34% in 2HFY19.
- Earnings call highlights: (a) Maintained domestic tractor industry growth of 12-15% in FY19 with 18-20% growth expected in 3QFY18, (b) grew ahead of industry by 14% in a strong market (v/s industry’s 8%) and opportunity market by 24% (v/s industry 10%), leading to 100bp market share gains in 1HFY19 at 11%, (c) RM inflation impact of 4.5% in 1HFY19 passed on with similar price hikes, indicated price increase of ~1% to cover 3QFY19 inflation, (d) cost control initiatives contributed ~90bp to margins in 2QFY19, (e) witnessed ~30-40% retail growth for first five days of Navratri festival.
Escorts is a holding company. Through its subsidiaries, Co. is engaged in the manufacture and sale of agricultural machines such as tractors, engines, round and flat tubes, double acting hydraulic shock absorbers for railway coaches, center buffer couplers, automobile shock absorbers, telescopic fronts and Mcpherson struts, brake blocks and all types of brakes used by railways. Co. also manufactures equipment for material handling and road construction. In addition, Co. is engaged in the provision of healthcare services and facilities, cellular telecommunications services, software development, provision of internet service, and other e-commerce, financial and investment services.
Motilal Oswal Financial Services Ltd. is a reputed name in Financial Services and Online Trading with group companies providing services such as Private Wealth Management, Retail Broking and Distribution, Institutional Broking, Asset Management, Investment Banking, Private Equity, Commodity Broking, Currency Broking, Principal Strategies & Home Finance.
Motilal Oswal Securities is a group company of Motilal Oswal Financial Service Limited which started as a stock trading company and has blossomed into well diversified firm offering a range of financial products and services. Motilal Oswal has built a reputation as the source for best stock trading company and this has taken a wealth of experience, knowledge and expertise, constantly working in tandem, over the years.
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