Escorts - Outlook for Tractor industry remains weak; maintain Reduce - BRICS

Escorts' reported numbers and operational performance for Q1FY13 were below our expectations, though profit was higher than our and the Street's estimates.

Revenue came in at Rs10.3bn - flat yoy and 3% below our estimate - with the contribution from agri-machinery up 696bps yoy to 82%. EBITDA margin stood at 5.2% - EBIDTA margin of agri-machinery expanded by 336bps yoy in Q1FY13 to 9.5%. PAT came in at Rs281mn, up 210% yoy and 49% qoq, and 22% above our estimate. We maintain our Reduce rating on the stock and expect it to attract lower multiples, mainly due to the weak outlook for the tractor industry, as well as the merger of group/subsidiaries, which will not turn earnings accretive for some more time. Our new DCF-based target price for Escorts stands at Rs59; maintain Reduce rating.

Source : Equity Bulls

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