Escorts rallies 8% post Q3 results, zooms 90% from 52-week low

In Q3FY20, the company's Ebitda margins improved 89 bps YoY to 13%

Shares of Escorts rallied 8 per cent on Thursday to hit nearly 10-month high of Rs 806 on the BSE on expectation of a gradual turnaround in tractor industry volumes, supported by a low base and improving rural sentiments.

The stock was trading at its highest level since April 1, 2019. The market price of Escorts has rallied 90 per cent from its 52-week low level of Rs 423, touched on August 23, 2019. In comparison, the S&P BSE Sensex was up 12.5 per cent during the same period. The trading volumes on the counter more than doubled today, with a combined 10.9 million shares changing hands on the NSE and BSE so far.

In the October-December quarter (Q3FY20), the company’s earnings before interest, tax, depreciation and amortization (Ebitda) margins improved 89 basis points (bps) year on year (YoY) to 13 per cent, driven by better mix and cost savings. On sequential basis, the Ebitda margins expanded 340 bps.

Total operational revenue, however, declined 1.3 per cent to Rs 1,633 crore over the previous year quarter. Net profit rose 9.2 per cent to Rs 153 crore on YoY basis.

Despite improved momentum in industry volume in recent months, analysts at Antique Stock Broking expect strong sustained industry volume to recover in FY21e as they see good 2/3 crop cycle at the farmers' end with good rainfall across regions and higher water tables in reservoirs.

“Customer sentiments have seen an improvement on delayed recovery in monsoon, expectations of better rabi output and firm crop prices. Post an expected decline of 7 per cent in industry volumes in FY20E, we anticipate 3 per cent growth in FY21E and 8 per cent growth in FY22E,” analysts at Emkay Global Financial Services said in company update.

Escorts is expected to gain share on channel expansion for both brands (Farmtrac and Powertrac), sales promotion initiatives in focus markets, expansion in product offerings and financing support from Escorts Credit (Rabo Bank), the brokerage firm said. It upgraded the stock to ‘buy’ from ‘hold’.

“According to management, the financial year 2020-21 (FY21) outlook has turned positive with estimated low single-digit growth. Large part of the decline in FY20 can be attributed to usage of tractors in infra projects, where there is slow recovery. Agri demand has been positive for the last 2-3 months, driven by good monsoons”, analysts at Motilal Oswal Securities said in result update.

Ace investor Rakesh Jhunjhunwala held 9.47 million, or 7.73 per cent, stake in Escorts at the end of December 2019 quarter.