Escorts

Escorts reported revenue of Rs. 1,385 cr in Q4 FY20, down 16% Y-o-Y basis mainly on account of nationwide lock down as significant number of sales materialize during the Navratra festival. The company reported EBITDA of Rs. 182 cr with EBITDA margins at 13.1% in Q4 FY20. EBITDA margins expanded by 190 bps on Y-o-Y basis due to one off gain and softening of commodity prices. PAT came in at Rs. 127 cr up from Rs. 116 cr reported in corresponding quarter last year. The company also declared a final dividend of Rs. 2.5 per share during the quarter. Domestic tractor industry is a cyclical industry going through the recovery phase of the industry cycle. Good reservoir levels along with healthy signs of Rabi crop sowing are an ideal arrangement for pick up in tractor sales and we expect Escorts to be the biggest beneficiary of the same. At CMP of Rs. 810 Escorts trades at 21x FY20 earnings of Rs 471.7 cr. Also, the impact of Covid-19 on sparsely populated agrarian industry is significantly constrained at the same time a good crop and unhampered consumption of the produce shall aid rural economy and keep the agriculture ancillary business like Escorts fueled. At current valuation, with the current capital market situation we expect intermediate corrections in the stock to around 17x trailing valuations; we assign an Accumulate rating to the stock and recommend to buy on dips below Rs. 693.