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Buy Escorts: AnandRathi Institutional Research
Posted On : 2016-02-06 09:35:26( TIMEZONE : IST )
Escorts - Disappointing Q3; estimates cut, limited downside expected; Buy with a target price of Rs 164
The continuous fall in tractor volumes along with disappointing performances in other segments led to a 15% revenue decline. Further, flat realisations qoq and higher RM costs resulted in the EBITDA margin contracting ~84bps yoy to 3.8%. PAT plunged 42% to Rs. 205m.
Revenue declines 15% yoy. Escorts' Q3 FY16 revenue was down 15.1% yoy to Rs. 8.9bn, due to the 16% decline in tractor volumes.
EBITDA margin contracts ~84bps. The Q3 EBITDA margin fell to 3.8%, against 4.7% a year ago. Flat realization growth and lower volumes led to lower EBITDA margins. The company has not benefited from the lower commodity prices as raw material costs seem higher qoq. The nine-month EBITDA slid 13% yoy.
PAT plunges 42% yoy. Q3 reported PAT was Rs. 205m, down 42% yoy. Reported PAT for nine months rose 17.7% to Rs. 729m, against Rs. 619m for the year-ago corresponding period.
Valuation. We are lowering our revenue estimates due to the change in FY16 estimates and the impact on future earnings. This revision stems from lower volumes and realizations in tractors as well as the 16% drop in construction equipment (vs.the 15% growth expected). We have not revised our 8% volume growth in tractors in FY17 and FY18.
From January, however, the stock has slid 21%, leading us to believe that the poor results seem to have been priced in. We see limited downside from the present price of Rs. 123. At the CMP, the stock trades at 6.6x FY18e . We also reduce our target multiple for FY18 from 10x to 9x. We maintain a Buy, with a revised price target of Rs. 164, implying 33% potential. Risks. Lower volumes may dent revenues; higher commodity prices may cut into margins.
Shares of ESCORTS LTD. was last trading in BSE at Rs.131.6 as compared to the previous close of Rs. 123.2. The total number of shares traded during the day was 126845 in over 2099 trades.
The stock hit an intraday high of Rs. 132.35 and intraday low of 123.3. The net turnover during the day was Rs. 16264030.
