Escorts - Q1FY13 results – Anand Rathi

Escorts is an engineering conglomerate. The company has diversified business into four different segments. Escorts Agri Machinery (EAM), Escorts Construction Equipment (ECE), Escorts Railway Products (ERP) & Escorts Auto Products (EAP).

Highlights

- Top line saw a flat growth of 0.2% and bottom line has shown a drastic increase of 210% on y-o-y basis to Rs. 1028.18crs and Rs. 28.14crs respectively.

- EBITDA margins ad PAT margins have improved marginally to 6.39% and 2.74% respectively in the quarter.

- EBITDA has improved in this quarter mainly due to discipline in cost front, change in product mix and new launches in premium as well economy segment.

- The concerns for the company are that lower margins compared to its peers, higher manpowwer cost, auto companants business still under pressure and overall industry still not seeing demand pick up.

- The positives being that there is now a management change, new launches are lined up, optimistaion of resources and cost control process is on. These changes in the structure will take another 2-3 years down the line to reflect in the numbers. So the wait is long.

- Currently the market share for Escorts has improved marginally to 11.5% compared to its peers TAFE 22-23% and Sonalika 10-11%.

- Considering the overall scenario and the growth potential for Escorts we feel it would take another 3-4 years to see the actual improvement in numbers, and this would remain as a overhang on the stock therefore we would suggest our investors to close the call (Escorts) and switch to SWARAJ ENGINES which makes engines for tractors and is better placed than Escorts, as it is also gaining market share over a period of time which is currently at 14%.

Source : Equity Bulls

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