MOSL: ESCORTS (Neutral)-In-line-recovery in festive season drives inventory reduction
ESCORTS: In-line; recovery in festive season drives inventory reduction
(ESC IN, Mkt Cap USD1.1b, CMP INR648, TP INR700, 8% Upside, Neutral)
- Operating deleverage hurts margins: Escorts' (ESC) revenue declined ~5% YoY to INR13.2b (our estimate: INR13.5b), led by lower volumes in Tractor (-6% YoY) and Construction Equipment (CE; -21% YoY) segments. Railway revenue grew ~20% YoY. Tractor realizations declined 2.8% QoQ (+1.7% YoY) to ~INR504k due to a weaker mix. EBITDA margin of 9.6% (our estimate: 9.8%) was impacted by operating deleverage and an adverse mix in Tractor/Rail. PBT declined ~24% YoY, but lower tax drove PAT growth of ~10% YoY to INR1.1b (our estimate: INR1b). Tractor segment PBIT margin shrank ~440bp YoY (-60bp QoQ) to 10.3%.
- 1H performance: ESC reported positive CFO of ~INR3b (v/s negative ~INR2.7b in 1HFY19), led by lower working capital. FCFF was at ~INR2b (v/s -INR3.4b in 1HFY19). Revenue/EBITDA/PAT declined ~6%/21.5%/9.5% YoY.
- Earnings call highlights: (a) Industry volumes declined 10% YoY. ESC's strong markets declined by ~2% and opportunity markets (east, south and west) by ~18%. (b) Dealer inventory was at <4 weeks as of Oct'19 (below normal), whereas inventory with company stood at 2 weeks. (c) FY20 industry volumes are likely to decline in single digit (implied flat volumes for 2H). A full-fledged recovery might be seen from Mar'20 or May-Jun'20. (d) The recovery was good in the festive season (Navratras to Diwali), though lower on a YoY basis. Industry de-grew by 15% in Apr-Aug and 5% in Sep-Oct. Momentum is expected to continue in Nov'19. (e) It added 45 new dealers (to over 950 dealers) in 2Q. (f) Rail order book stood at ~INR5b, which will get executed over the next 12-15 months. (g) Margins in 2H are likely to be better than 1H with inventory correction now behind.
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.
Unfortunately, this report is not available for the investor type or country you selected.
Browse all ResearchPool reportsReport is subscription only.
Thank you, your report is ready.
Thank you, your report is ready.