Escorts Ltd expects strong growth in the construction equipment segment over the next 4-6 quarters.

Chirag Batavia • 8 March 2021

Escorts Ltd

 We believe the tractor industry is likely to show strong growth over the next two years led by good monsoons over the past two years, stable crop prices, higher Rabi crop output and higher mix of non-agricultural-based tractors.

 With revival in the economy and government spending, we expect construction equipment and railway segment revenues to grow by double-digit CAGR (compound annual growth rate) over FY22-23E.

 The company expects strong growth in the construction equipment segment over the next 4-6 quarters. We estimate total tractor volumes to grow at 14.5% yoy in FY21E and 10.7% in FY22E for the company.

 Net cash stood at ~Rs2700 cr as of December 2020 versus ~Rs1670 cr as of September 2020 and net cash levels of ~Rs310 cr as of March 2020.

 We expect EPS (earnings per share) to grow at 22% CAGR over FY20-23E. Our Fair Value of Rs1,700/share is based on 17x March 2023E EPS.

Escorts Ltd: BUY
Dated: 8th March 2021
CMP: Rs.1319
Fair Value: Rs.1700
Potential Upside: 28.9%
Market Cap: Rs. 17,859 Cr
Time Frame: 12 months

Note: The above is a brief note on the company, based on the inputs of KIE research report dated 2nd February 2021, which is available on their website at: https://www.kotaksecurities.com/ksweb/ResearchCall/Fundamental.       
Disclaimer: http://bit.ly/2n5AxIE



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