MOSL: ESCORTS (Neutral)-Strong monsoon, early festive season to lay growth foundation
Escorts: Strong monsoon, early festive season to lay growth foundation
(ESC IN, Mkt Cap USD1.2b, CMP INR669, TP INR732, 9% Upside, Neutral)
- Steady growth despite GST transitional hiccups: Overall revenue increased 11% to INR11.6b (est. of INR11.2b) in 1QFY18 from INR10.5b in 1QFY17, led by strong growth of 20% YoY in Construction Equipment and 10% YoY growth in Tractors. EBITDA margin shrunk 20bp YoY from 8.6% to 8.4% (est. of 8.3%), led by gross margin contraction of 70bp. EBITDA increased 8% YoY to INR975m (est. of INR934m) from INR900m. Consequently, adj. PAT grew 14.3% YoY from INR548m to INR626m (est. of INR565m), led by higher-than-expected other income of INR205m (est. of INR120m).
- Market share takes hit; 2QFY18 expected to bring positive swing: ESC witnessed a decline in its domestic Tractors market share to 9.7% in 1QFY18 on account of deferral of sales due to GST. Overall domestic tractor industry witnessed subdued growth of 8.5% YoY in 1QFY18 due to de-growth of 3% in the south and west regions. However, with a continued focus on farm mechanization and the transitional phase of GST over, the domestic tractor industry is expected to grow at higher levels of 18-20% in 2QFY18. Railway business (+13% YoY in 1QFY18) is also expected record CAGR of 15-20% over the next three years, led by strong order book visibility (INR1.5b worth of orders expected to get executed by 3QFY18).
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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