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  • Stock Recommendation: Escorts Ltd – ACCUMULATE – TP Rs.958

    Publish Date: 31st July, 2018

    Result Update

    Escorts reported strong 1QFY19 results with outperformance in the construction equipment and railway equipment segments. Tractor segment reported strong YoY growth and the performance in the quarter was broadly on expected lines.

    Key Highlights

    • Escorts 1QFY19 revenue came in at Rs15,113mn, 32% growth over corresponding quarter last year. EBITDA in the quarter increased by 90% YoY to Rs1,856mn. EBITDA margin expanded by 374bps YoY on the back of strong performance across segments. Railway equipment and construction equipment segments reported better than expected EBIT margins in the quarter. On the back of robust revenue growth and strong operational performance, the company reported PAT of Rs1,207mn, 93% growth YoY.

    Valuation & outlook

    In view of strong 1QFY19 volume performance, the management has increased FY19 industry growth guidance to 12-15%. After the witnessing strong tractor industry volume growth over the past two years and in 1QFY19, we expect the growth rate to moderate from 2QFY19 as base becomes significantly higher. Escorts EBITDA margin witnessed sharp improvement in FY17/FY18 and the management has guided for another 100bps improvement in FY19. While the construction equipment and railway equipment divisions are expected to witness margin improvement; tractor segment margins going forward might witness pressure in absence of volume growth. We marginally increase our FY19 estimates but lower our FY20 estimates. We rate the stock as ACCUMULATE with revised price target of Rs958 (earlier Rs1,074).


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