BUY ESCORTS @ 76 with a price target of Rs110 - LKP Research

Company Profile: The Rs40bn Escorts is the third largest player in agricultural machinery in India after M&M and TAFE with a market share of 11%. Its Farmtrac & Powertrac brands of higher HP tractors have a strong brand equity in North India.

What is changing at ESCORTS? Promoters increased their holding in Escorts from 28% to 32% during CY'12 and in a strategic move (not in the best interests of minority shareholders) merged group companies into the business of Construction Equipment - CE and Finance into Escorts to shore up their holding in the company to 42% now thereby putting to rest all possible attempts of a take over.

Post this merger, Tractors now form 75% of revenues, CE forms 16% and the balance 9% comes from Railways & Auto Components. The merger now exposes Escorts to the investment cycle in India as it is a key monitorable for the CE business which is presently witnessing challenging times.

Escorts sells ~60,000 tractors annually and we believe that with a steady rise in MSP of crops and improving rural incomes augurs well for the industry going forward. We are optimistic on the ability of Escorts to emerge as a Pan India player in Tractors going forward and improve its EBIDTA margins by 100bps annually for the next two years as it introduces newer models and enters newer markets in India.

BUY ESCORTS @ 76 with a price target of Rs110

Source : Equity Bulls

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