Escorts - Q1 FY22 - Aggressive price hikes helped offset higher RM cost - Not Rated - YES Securities

- Revenues declined 24.4% QoQ to Rs16.7b (inline to bloom cons) as decline in tractor/construction equipment volume by 20.4%/62% QoQ to 29.93k/606 units.

- Tractor realizations grew 3.6% YoY/ 2% QoQ to Rs544.4k/unit.

- Gross margins improved 20bp QoQ to 31.7% supported by price hikes.

- EBITDA fell 32.3% QoQ to Rs2.3b (cons Rs2.2b) with margins at 14% (cons at 13.3%, -160bp QoQ).

- Segmental EBIT% - Tractors at 15.6% (-140bp QoQ), CE at -2.3% (v/s +7.3% QoQ) and Railways at 14.6% (-450bp QoQ).

- PAT declined ~32% QoQ at Rs1.85b (cons Rs1.78b).

- Domestic tractor market share declined ~230bp QoQ (flat YoY) at 10.7%.

- Stock currently trades at 13.6x of FY23 bloom S/A EPS.

Call highlights

- Domestic tractor industry FY22 growth guidance remain unchanged at 5-6%. This imply negative growth for rest of FY22.

- The company has passed on the entire RM inflation till June. Further price hike is needed in Q2 to pass on the incremental RM inflation of 2%.

- Currently the company has dealer inventory of ~30 days (v/s 45-50 days for industry), which creates further headroom for inventory push in Q2.

- Capex guidance for FY22 at ~Rs3b (including tractor capex of ~Rs2.75b).

- Don't expect any major impact of pre-buying before Stage-V norms (production cut off date postponed by 6 months to 1st April'22) as it is only applicable for 50HP+ tractors (industry mix of <10%).

- 8-10% of the agri division revenue is contributed by non-tractor segment and aftersales. It was 9.5% for Q1FY22.

- View- Cost control and price hikes help offset RM, incremental margins to be challenging in muted volumes for rest of FY22. At ~14x bloom cons EPS, stock largely factors in positives. Key to watch- Non agri demand recovery and incremental price absorption by customers.

Shares of Escorts Limited, was last trading in BSE at Rs. 1224.45 as compared to the previous close of Rs. 1234. The total number of shares traded during the day was 177589 in over 9766 trades.

The stock hit an intraday high of Rs. 1255 and intraday low of 1213.6. The net turnover during the day was Rs. 218997266.

Source : Equity Bulls

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