MOSL: ESCORTS (Neutral)-Above our estimate; a strong showing in Tractors, but the cycle is turning
ESCORTS: Above our estimate; a strong showing in Tractors, but the cycle is turning
(ESC IN, Mkt Cap USD2.2b, CMP INR1224, TP INR1270, 4% Upside, Neutral)
Single-digit growth in FY22 implies a residual decline in single-digit
- Operating performance in 1QFY22 was driven by strong growth in the Tractor business (benefitting from the mix). The demand outlook is turning murky, which raises uncertainties over the next 12-15 months, though Kubota JV, leaner cost structure, recovery in the Railways/Construction Equipment, and a strong Balance Sheet will dilute impact on the P&L.
- We cut our FY22E/FY23E EPS by 2%/11% to factor in weaker volumes. We maintain our Neutral stance with a TP of INR1,270/share (14x Sep'23E consolidated EPS).
Higher other income boost adj. PAT
- Revenue/EBITDA/PAT declined by 24%/32%/32% QoQ (+57%/ 95%/ +101% YoY) in 1QFY22 to ~INR16.7b/INR2.3b/INR1.85b.
- Tractor volumes declined by 20% QoQ (+43% YoY). Net realizations improved by 2% QoQ (+3.6% YoY) to INR544.2k (est. INR539k) due to price hikes. Revenue from Tractors/Railways/Construction Equipment fell 19%/18.5%/56% QoQ.
- EBITDA margin declined by ~160bp QoQ (+270bp YoY) to 14% (est. 12.5%), impacted by operating deleverage.
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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