Premium| Listen to this article |
Big bull of the equities market, Rakesh Jhunjhunwala has offloaded his majority stake in the tractors manufacturer, Escorts. The investor who is famously referred to as the 'Warren Buffet of India' has reduced his shareholding steeply to even below or around1% in this Haryana-based agricultural machinery company.
In the latest shareholding data of Escorts on stock exchanges, as of March 2022, Rakesh Jhunjhunwala's name is not mentioned in the public shareholders' list.
As of December 2021, Jhunjhunwala had held 75 lakh equity shares or 5.68% in Escorts. However, now his name does not appear in Escorts Q4FY22 shareholding list, which could mean, his stakes are below or more or around 1%.
The Trendlyne platform for stock screeners and analysis, shows that Jhunjhunwala's shareholding in Escorts is below 1% on the charts. This means Jhunjhunwala has booked his profits in the company during January - March 2022 period.
Jhunjhunwala has held Escorts shares since December 2015. During this time, he bought 11,225,000 equity shares, or 9.16% of Escorts. However, since then Jhunjhunwala has modified his holding in the company through buying or selling.
On Wednesday, Escorts shares closed at ₹1540.35 apiece flat compared to the previous closing on BSE. The shares have touched an intraday high of ₹1557.65 apiece and ₹1530.50 apiece respectively.
In the last five days, Escorts shares have nosedived by over 18% on BSE. The shares were at ₹1,888 apiece on April 6 and corrected steeply since then.
However, in a year, Escorts shares have jumped by nearly 25% taking in consideration today's closing price. The shares were at ₹1,233.7 apiece on the same day last year.
On Escorts, Saji John, Senior Auto Analyst at Geojit Financial Services said, "Due to high base of last year and weak non agri tractor demand, the tractor wholesale numbers continue to remain subdued for near term. We expect the situation to improve next year as the Agri indicators continues to be promising with Rabi sowing at an all time high, good level of water reservoir, favourable crop price and initial positive forecast of 2022 as normal monsoon, all supporting rural sentiments. Currently the stock is trading at 12% premium to its historical avg."
In March 2022, Escorts sales stood at 10,074 tractors as against 12,337 tractors sold in March 2021, a drop of 18.3% year-on-year. The performance was impacted due to the high base of last year and subdued commercial demand.
The tractor sales declined by 32.8% to 21,895 units between January - March 2022 (Q4FY22) period compared to 32,588 tractors recorded in the same quarter last year. For the full year FY22, Escorts tractor sales have plunged by 11.7% to 94,228 units against 1,06,741 units of FY21.
Last month, Escorts in its sales report said, "during next year, the tractor demand is expected to improve led by higher Rabi output, good level of water reservoirs, increased Union budget allocations to rural and Agri sector coupled with favorable crop prices, and initial positive forecast of 2022 monsoon season as normal, all supporting rural customer sentiments. The rising inflation however continues to be an area of concern."
As of December 2021, the company posted a consolidated net profit of ₹193.71 crore versus ₹173.47 crore in Q2FY22 and ₹286.42 crore in Q3FY21. The company's revenue from operations stood at ₹1,984.28 crore against ₹1,673.85 crore of Q2FY22 and ₹2,042.23 crore in Q3FY21.
For the nine months, Escorts recorded a net profit of ₹606.22 crore against ₹871.63 crore of the corresponding period of the previous year. Consolidated revenue from operations was at ₹4,785.67 crore versus ₹7,014. 42 crore of the same period last year.
Where is Escorts stock seen ahead?
Shashank Kanodia and Raghvendra Goyal, Research Analysts at ICICI Securities in their report stated that they are positive on the company's on-boarding of Kubota Corporation (Japan) as a co-promoter with preferential allotment of fresh equity at ₹2,000 per share and consequent open offer. The duo said, "We remain positive on this development, given Kubota’s know how in the farm equipment, mechanisation and construction equipment space. We see this as a winning combination & shall expand the product offerings at Escorts."
Further, the two said in their note, "Given the low electronic content in product offering at Escorts we see the company witnessing just gross margin pressure if the commodity prices remain at elevated levels to the prevailing geo-political tensions."
"Consequently, we revise our forward estimates. We however downgrade the stock from BUY to HOLD given low growth trajectory at its core tractor business and await larger plans from its association with Kubota Corporation before turning decisively positive on the stock. We value Escorts at SOTP-based TP of ₹2,050 (25x P/E on core FY23E-24E average EPS, 15% discount on treasury shares)," they added in their note.
Escorts is the country's fourth largest tractor maker (11.3% FY21 market share) and also serves the domestic construction equipment, railways space. The company's top-line front is largely contributed by tractor segment at 82%, whereas construction & railways contribute 11%, 7% respectively. Escort has cash rich b/s with net cash positive at ₹5,000 crore