Credit Suisse expects tractors volumes to grow at CAGR of 11 percent over FY17-21 and EBIT (earnings before interest and tax) margin to improve from 10 percent to 14 percent by FY20
Credit Suisse has initiated coverage with outperform rating on Escorts, the tractor maker as it believes tractor cycle will remain strong for another two years.
The research house expects the stock to hit a target price of Rs 900 per share, implying a potential upside of 26 percent over Thursday's closing price.
Escorts is fourth-largest tractor manufacturer with niche construction equipment and railways business. Tractors account for around 80 percent of revenues and 95 percent of profit.
The company has turned around in the last few years by focusing on new products. It has best earnings growth and lowest valuation multiple amongst auto original equipment manufacturers.
Credit Suisse expects tractors volumes to grow at CAGR of 11 percent over FY17-21 and EBIT (earnings before interest and tax) margin to improve from 10 percent to 14 percent by FY20
According to the brokerage house, decline in tractor volumes, and lower activity in construction & railways are key downsides to the stock.
Credit Suisse expects fast topline growth at railways and margins turnaround in construction equipment division.
Meanwhile, Escorts' agri machinery (tractor) volumes grew by 6.5 percent to in November 2017.
Agri machinery segment in November 2017 sold 5,119 tractors against 4,806 tractors in November 2016.
Domestic tractor sales for the month increased 5.2 percent to 4,941 tractors while exports rose by 64.8 percent to 178 tractors YoY.
At 15:07 hours IST, the stock price was quoting at Rs 690.25, down Rs 26.75, or 3.73 percent on the BSE.
