Escorts ends FY21 on a good note, but road ahead is bumpy

Better product mix and operating leverage boosted Ebitda margins of Escorts on a y-o-y basis. Even so, Ebitda margins have contracted by 245 basis points sequentially.Premium
Better product mix and operating leverage boosted Ebitda margins of Escorts on a y-o-y basis. Even so, Ebitda margins have contracted by 245 basis points sequentially.
 2 min read . Updated: 18 May 2021, 05:16 PM IST Pallavi Pengonda

MUMBAI : Escorts Ltd’s March quarter financial results are decent. Standalone revenues increased by 60% year-on-year (y-o-y) to ₹2,210 crore. This growth was driven by 64% y-o-y increase in tractor revenues, 53% y-o-y increase in construction revenues and 36% y-o-y increase in the railway segment. The three segments— tractor, construction and railway—accounted for around 78.7%, 14.5% and 6.6% of the revenues during the March quarter, respectively.

Note that tractor volumes last quarter grew by 62% y-o-y to 32,588 units.

MORE FROM THIS SECTIONSee All

Overall, Escorts’ earnings before interest, tax, depreciation and amortization (Ebitda) margins expanded by 150 basis points to 15.6%. One basis point is one-hundredth of a percentage point. Better product mix and operating leverage boosted Ebitda margins on a y-o-y basis. Even so, Ebitda margins have contracted by 245 basis points sequentially.

“Sequential decline in Ebitda margins can be attributed to 280 basis points decline in gross margins due to steep increase in steel prices and inferior segment mix (higher mix of low-margin construction equipment segment), partly offset by operating leverage benefits," said analysts from Kotak Institutional Equities in a report on 14 May.

For financial year 2021, Escorts’ tractor volumes increased by 24% y-o-y, which looks decent given the adverse impact of the pandemic in the first half of the fiscal.

To be sure, the road ahead is not particularly smooth. The second covid wave and the various restrictions are expected to weigh on demand. This time around, rural areas are also getting impacted, which would affect Escort’s core customer base.

Analysts from Dolat Capital Market Pvt. Ltd said in a report on 15 May, “Management expects the June quarter to be weak due to the spread of covid cases in rural India, two-thirds of dealerships are closed (entirely or partially) due to regional lockdowns." The broker added, “Construction equipment and railway division are also under stress in the current circumstances. The management anticipates demand to bounce back from September post vaccination drive."

Meanwhile, the Escorts stock has remained flattish on NSE since the March quarter results were announced on Friday. Although, the stock has declined by around 18% from its 52-week highs seen in February. Near-term demand concerns could well limit meaningful appreciation in the shares.

Subscribe to Mint Newsletters
* Enter a valid email
* Thank you for subscribing to our newsletter.

Never miss a story! Stay connected and informed with Mint. Download our App Now!!

Close