MOSL: ESCORTS (Neutral)-Beat driven by gross margin expansion; Outlook improving
Escorts: Beat driven by gross margin expansion; Outlook improving
(ESC IN, Mkt Cap USD1.3b, CMP INR748, TP INR782, 5% Upside, Neutral)
Recovery largely priced in and expected 4QFY20 onwards
- Escorts’ 3QFY20 performance is a reflection of stability in volumes, benefit of mix improvement and cost savings, all of which should sustain in the coming quarters. According to management, FY21 outlook has turned positive with estimated low single-digit growth.
- We upgrade our EPS estimates by ~9%/5% for FY20/FY21, but maintain our Neutral rating as we believe the expected recovery is already priced in.
Record-high quarterly margins led by mix and cost savings
- 3QFY20 revenues/EBITDA/PAT grew -1%/6%/15% YoY to ~INR16.3b/INR2.1b/INR1.53b. 9MFY20 revenue/EBITDA/PBT declined 4%/11%/18%, but PAT was flat due to lower tax.
- Tractor volumes declined ~2% YoY, but net realizations improved ~2.4% YoY (+2% QoQ) to ~INR514.4k (v/s est. ~INR506.7k) due to better mix. Its domestic tractor market share improved ~30bp to ~11.2% in 9MFY20.
- EBITDA margins expanded 90bp YoY (+340bp QoQ) to ~13% (v/s est. 11.4%), driven by better mix and cost savings.
- Tractor business PBIT margins improved 20bp YoY (+420bp QoQ) to ~14.5%. CE business PBIT margins improved ~130bp YoY (+210bp QoQ) to ~4.8%, driven by mix despite volume decline of 26% YoY. Rail business PBIT margins declined ~150bp YoY (-70bp QoQ) due to higher contribution of new products (having higher import content).
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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