Escorts stock soars to nearly double in 5 months, earns brokerage upgrades; check new target prices

After a strong third-quarter performance by Escorts where the company reported a strong 9% rise in profit, the stock price for the Farm equipment and engineering products maker has been touching new skies. Trading up by more than 7% at Rs 802, the stock has jumped from its opening price of Rs 760. The stock price has jumped 100% in the last five-months from Rs 432 in August 2019.

According to analysts at Motilal Oswal, “Escorts’ Q3FY20 performance is a reflection of stability in volumes, benefit of mix improvement and cost savings, all of which should sustain in the coming quarters.” Motilal Oswal said that it has upgraded the EPS estimates by ~9%/5% for FY20/FY21, but maintains Neutral rating adding that the expected recovery is already priced in. Escorts’ EBITDA jumped 6% and PAT grew by 15% Year on Year (YoY).

Emkay Global has upgraded the company’s FY21-22E EPS by 12% each to Rs 60.8/Rs 72.9 on higher volume and margin assumptions. It added, “Following the revision, EPS is expected to see 13% CAGR over FY20-22E. Average ROE/ROCE are expected at 15%/19% over FY20-22E.”

Analysts are looking positively at Escorts as the industry has endured with a slowdown which according to many has bottomed out and will only grow from here. “Post an expected decline of 7% in industry volumes in FY20E, we anticipate 3% growth in FY21E and 8% in FY22E,” said analysts at Emkay.

Escorts Tractor volumes are up by 27.1% QoQ at 25,109 units while the construction volume is up 10.5% QoQ at 1,044 units and the domestic tractor market share up 47 bps YoY to 11.9%.

Escorts management too has come out with positive comments for investors, saying that they expect low single-digit growth in FY21 and see recovery from the northern markets. The management hinted out that the coming FY21 will be better than FY20. Bharat Madan, Group CFO, Escorts told CNBC TV18 that the company “expects some recovery to continue in Q4 in the tractor segment.”

Emkay experts pegged the target price for the stock at Rs 1,000 in the coming 12 months while HSBC sees the stock price touch Rs 900. Motilal Oswal said that it is upgrading the EPS estimates by 9%/5% for FY20/FY21 to reflect the improving outlook for tractor volumes, improving mix and cost savings and has kept the target price at Rs 782.

Source: Financial Express