MOSL: ESCORTS (Neutral)-Margin beat on operating leverage-market share gain continues
Escorts: Margin beat on operating leverage; market share gain continues
(ESC IN, Mkt Cap USD1.2b, CMP INR674, TP INR754, 12% Upside, Neutral)
- Operating leverage offsets mix/RM pressure: ESC's revenue increased 37% YoY (+18% QoQ) to INR16.5b (est. INR16b). Tractor/construction equipment (CE)/railway businesses grew 36%/44%/34% YoY, led by volume and realizations growth. Tractor segment realization grew 0.2% QoQ (+1.2% YoY) to INR502k (est. INR497.1k) largely led by price hikes as mix worsened QoQ. EBITDA margin came in at 12.1% (est. of 11.5%), as impact of higher RM cost (+310bp YoY) was more than offset by operating leverage. ESC reported exceptional gain of INR109m relating to transfer of the rough-terrain cranes business to its JV - Tadano Limited, on a slump sale basis. Adj. PAT grew 45% YoY (-29% QoQ) to INR1.3b (est. INR1.2b). For 9MFY19, revenue/EBITDA/PAT grew ~27.5%/42%/50%.
- Earnings call highlights: (a) Cut domestic tractor industry guidance to 10-12% (v/s 12-15% earlier) in FY19, with 4QFY19 growth of <5%, (b) market share increased ~130bp in 3QFY19 to 11.4% (market mix led 20-25bp rise and we expect FY19/FY20 market share at 12%/12.5-13%, (c) price increase of ~1% in end Nov'18, (d) inventory level at 3-3.5 weeks is much lower than peers, (e) finance availability is not a constraint yet, (f) FY19/FY20 capex at INR1.6b/INR2.5-3b, and (g) CE and Railway business to grow 13-15% and 20-25% in the medium term.
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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