MOSL: ESCORTS (Downgrade to Neutral)-Market share increases, valuations capture future earnings growth
​Escorts: Market share increases, valuations capture future earnings growth
(ESC IN, Mkt Cap USD0.7b, CMP INR672, TP INR711, 6% Upside, Downgrade to Neutral)
- Tractors drives strong performance: 4QFY17 revenue grew robustly by 30% YoY to INR10.2b (est. of INR9.8b), driven by a strong performance in Tractors (+28%; volumes up 27%), Construction Equipment (+43%) and Railways (+17%). EBITDA margin expanded strongly by 170bp YoY to 7.3%, driven by higher volumes in Tractors and cost-reduction initiatives. EBITDA grew 70% YoY to INR744m, while adj. PAT rose 37% YoY to INR478m (est. of INR513m) due to higher tax outgo. For FY17, consol. revenue grew 17% to INR41.5b, EBITDA margin expanded 280bp to 7.5% and adj. PAT doubled to INR1.9b.
- Market share gains continue; management targets double-digit margins in FY18: ESC outperformed the tractor industry growth rate (18%), leading to an increase in its market share from 10% to 10.5% in FY17. Its share improved by 100bp in the strong markets and by 50bp in the opportunity markets. In 4Q, it is expected to have crossed market share of 12%, with a considerable improvement in the 41-50hp category. Management is targeting for double-digit EBITDA margin in FY18 v/s 7.5% in FY17, driven by sales growth (subject to good monsoon) and initiatives on raw material/employee costs.
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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