Rakesh Jhunjhunwala-owned Escorts’ stock price was down in red on Wednesday morning, a day after the company announced its quarterly results. Escorts reported a 28% drop in net profit in the October-December quarter when compared to the year-ago period. Analysts largely have negative views on the stock, at least for the near term with most expecting the scrip to fall. Year-to-date Escorts share price is down more than 3%. On Wednesday morning the stock fell 0.36% to trade at Rs 1,834 per share. Rakesh Jhunjhunwala owned a 5.2% stake in Escorts at the end of December last year, up from 4.8% at the end of the July-September quarter.
Kotak Securities: Reduce
Fair value: Rs 1,800
The brokerage firm said that Escorts’ results were broadly in-line. However, analysts have cut EPS estimates 3-11% lower domestic tractor volume growth assumptions and 10 bps cut in EBITDA margin assumptions. Although Kotak Securities believes the tractor industry will likely grow 5% CAGR over FY2023-24E and reviving economy will bode well for construction equipment and railway segments of Escorts, they have downgraded the stock to Reduce rating and trimmed target price from Rs 1,900 to Rs 1,800 apiece. “We believe the stock has fully priced in recovery across segments at this juncture,” they said.
Motilal Oswal: Neutral
Target price: Rs 1,800
Analysts at Motilal Oswal have trimmed their target price for the company and have reduced their FY22E/FY23E EPS by 10%/7.5% to factor in lower sales from the Tractor division. The brokerage firm said that the results posted by Escorts were reasonable considering the high-cost inflation and operating deleverage. “The demand outlook remains tepid over the near term, but the management is hopeful of recovery in FY23E on the back of stable agro-economic factors,” they added. The stock is seen to be trading at 20.5x consolidated FY24E EPS, at a premium to its 10-year average of 10x, driven by an improvement in operating parameters as well as the Kubota partnership. The target price implies a down side of nearly 2%.
Nirmal Bang: Accumulate
Target price: 1,790
The brokerage firm said that it has a ‘cautious’ stance on the tractor industry and estimates a volume decline of ~3%/2% in FY23E/FY24E. The tractor business’ contribution to Escorts revenue and EBIT is at ~80% and 90%, respectively. “We have reduced our earnings estimates for FY22-24E by 6-8% to factor in weakness in domestic volume. We see current valuation factoring in most of the benefits, which should restrict any material upside in our view,” Nirmal Bang said in a report. The target price has been cut from Rs 1,830 earlier to Rs 1,790 per share, implying a 3% downside.
Reliance Securities: Buy
Target price: Rs 2,250
Despite the near-term demand weakness in tractor sales, Reliance Securities said that they expect the tractor industry to continue growing on account of the changing industry dynamics, increasing mechanization, rising affordability, and widening alternate usage of tractors. “In view of the sizable presence in a relatively better-placed tractor segment, strong positive cash flow, healthy return ratios, and attractive valuation at 17.2x FY24E earnings, we reiterate our BUY rating on the stock,” they added. The set target price suggests an upside of 22%.
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