MOSL: ESCORTS (Sell)-Strong quarter-expect the trend to continue in 4Q
Escorts: Strong quarter; expect the trend to continue in 4Q
(ESC IN, Mkt Cap USD1.5b, CMP INR813, TP INR714, 12% Downside, Sell)
- Revenue in-line; strong beat on EBITDA and PAT: ESC’s overall revenue increased 12.2% YoY to INR12b (est. of INR12.4b) in 3QFY18. Construction equipment and railway equipment businesses registered strong growth of 21.7% and 24.2% YoY, respectively. Tractors business grew by 6.6% YoY. EBITDA margin expanded 350bp YoY to 12% (est. of 9.9%), led by a 230bp decline in raw material cost to 66.5% of net sales and a 90bp decline in other expenses to 12.7% of net sales. EBITDA grew 59% YoY to INR1,450m (est. of INR1,233m). Adj. PAT thus rose 67% YoY to INR919m (est. of INR745m).
- Growth momentum to continue in 4Q: ESC posted strong volume growth across segments in 3QFY18, and also managed to expand its market share by 30bp YoY to 10.4%. Volume growth is set to remain robust in 4Q as well, given the preponement of the festive season from April to March. However, the rise in commodity prices will continue exerting pressure on margins, part of which is expected to be offset by price hike taken in 2QFY18 (2-2.5% price hike on full-year basis).
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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