Gladiator Stocks - Escorts - ICICI Direct

Strategy

Buy Escorts in the range of Rs. 1220.00-1245.00 for target price of Rs. 1420.00 with stop loss of Rs. 1140.00. Time Frame: Six months

Technical View

- The stock has undergone a healthy higher base formation in the last four months in a rectangular consolidation pattern after a stupendous rally in CY20. It is currently seen forming a potential triple bottom at the rising 52 weeks EMA (currently at 1177) being the previous almost identical lows of December 2020 and February 2021 placed around Rs. 1180 levels. Hence, it offers a fresh entry opportunity with a favourable risk reward set up

- We expect the stock to resume its primary up trend and gradually head towards Rs. 1420 levels in coming months as it is the 80% retracement of the last four months breather (Rs. 1452-1177)

- Key point to highlight is that, over past 19 weeks, the stock has retraced less than 80% of preceding 14 week's up move (1078-1452). Shallow price retracement signifies robust price structure

Fundamental View

- Escorts Ltd (Escorts) has significant exposure to the rural economy through its tractor division where it is one of the prominent players thereby commanding domestic market share at 11.4% as of 11MFY21. As of 9MFY21, Escorts derived ~83% of its sales from the tractor segment with rest being constituted by construction equipment (~10% of sales) and railways (~7% of sales). The domestic tractor space has bucked the downward trend of the overall automotive industry in FY21 by registering double digit YoY growth. The tractor space is currently enjoying supportive medium-term and longer-term tailwinds. Rural cash flows remain relatively strong due to high crop production and remunerative procurement, while government continues to focus on doubling farm incomes and improving rural infrastructure. The company is undertaking tractor capacity expansion to 1.5 lakh units p.a. (from present 1.15 lakh units p.a.), and hopes to reach production volumes of ~12-13,000 units p.m. by mid FY22E

- Sales, PAT at Escorts are expected to grow at ~15%, ~11% CAGR, respectively in FY21E-23E. The company is net cash positive with surplus cash on books to the tune of ~ ₹ 950 crore presently. It also realises healthy cash flow from operations and possesses an capital efficient business model with RoCE > 15%. Sustained strength in tractors, uptick in construction equipment prospects, healthy B/S and strategic investment of Kubota Corporation are positive factors for Escorts

For details, click on the link below: https://www.icicidirect.com/mailimages/IDirect_GladiatorStocks_Escorts_Apr21.pdf

Shares of ESCORTS LTD. was last trading in BSE at Rs.1246.85 as compared to the previous close of Rs. 1217.65. The total number of shares traded during the day was 53473 in over 2652 trades.

The stock hit an intraday high of Rs. 1256.45 and intraday low of 1203.15. The net turnover during the day was Rs. 66249492.

Source : Equity Bulls

Keywords