Escorts owned by Rakesh Jhunjhunwala report 28% drop in profits and drop in sales; should you buy or sell?
Escorts reported a 28% decline in net income in the October-December quarter compared to the year-ago period. Analysts have largely negative views on the stock.
The share price of Escorts, owned by Rakesh Jhunjhunwala, was down in the red on Wednesday morning, a day after the company announced its quarterly results. Escorts reported a 28% decline in net income in the October-December quarter compared to the year-ago period. Analysts have largely negative views on the stock, at least in the short term, with most expecting the scrip to fall. Since the start of the year, Escorts’ stock price is down more than 3%. On Wednesday morning, the stock fell 0.36% to trade at 1,834 rupees per share. Rakesh Jhunjhunwala held a 5.2% stake in Escorts at the end of December last year, up from 4.8% at the end of the July-September quarter.
Kotak Securities: Reduce
Fair value: Rs 1,800
The brokerage firm said Escorts’ results were broadly in line. However, analysts cut EPS estimates by 3-11% to domestic tractor volume growth assumptions and 10 basis points to EBITDA margin assumptions. Although Kotak Securities believes the tractor industry is likely to grow 5% CAGR in FY 2023-24E and economic recovery will bode well for the construction equipment and rail escort segments , they downgraded the stock to lower the rating and lower the target price from Rs 1,900 to Rs 1,800 a piece. “We believe the stock has fully priced in the rally across all segments at this point,” they said.
Motilal Oswal: neutral
Target price: Rs 1,800
Analysts at Motilal Oswal cut their price target for the company and cut their FY22E/FY23E EPS by 10%/7.5% to account for lower Tractor Division sales. The brokerage said Escorts’ reported results were reasonable given high cost inflation and operational deleveraging. “The demand outlook remains tepid in the near term, but management expects a recovery in FY23E on the back of stable agro-economic factors,” they added. The stock trades at 20.5x FY24E consolidated EPS, with a premium to its 10-year average of 10x, due to improved operating metrics as well as the Kubota partnership. The target price implies a decline of almost 2%.
Nirmal Bang: Accumulate
Target price: 1,790
The brokerage firm said it has a “cautious” stance on the tractor industry and estimates a volume decline of around 3%/2% in FY23E/FY24E. The contribution of the tractor business to Escorts revenue and EBIT is approximately 80% and 90%, respectively. “We have reduced our FY22-24E earnings estimates by 6-8% to account for weak domestic volume. We believe the current valuation is factoring in most of the upside, which should limit any significant upside in our opinion,” Nirmal Bang said in a report. The target price was reduced from Rs 1,830 earlier to Rs 1,790 per share, implying a 3% drop.
Reliance Securities: buy
Target price: Rs 2,250
Despite the near-term weakness in tractor sales demand, Reliance Securities said it expects the tractor industry to continue to grow due to changing industry dynamics, increasing mechanization, increasing accessibility and expanding the alternative use of tractors. “Given the significant presence in a relatively better positioned tractor segment, strong positive cash flow, healthy yield ratios and an attractive valuation at 17.2x FY24E earnings, we reiterate our BUY rating on the title,” they added. The target price set suggests a 22% upside.