Shares of Escorts moved higher by 5 per cent to Rs 1,350, also its fresh record high, in the intra-day trade on the BSE on Monday on expectation of better-than-expected demand for tractors in the domestic market in the current fiscal. This demand improvment, analysts say, could translate into good revenue growth for the company.
The stock surpassed its previous high of Rs 1,343, touched on September 30, 2020. In the past one year, it has zoomed 106 per cent as compared to a 5.3 per cent rise in the S&P BSE Sensex.
Escorts' management stated that the overall rural sentiment is positive because of the record output of Rabi crop along with better realization, strong Kharif sowing season and easy availability of retail finance. Furthermore, the management expects demand momentum to continue with supply chain issues ironing out. Besides, the current inventory at channel level is very low and re-stocking will also aid in volume growth in the coming quarters.
"Expanding market presence across domestic and international markets, combined with enhanced product offerings in its three core businesses would be the key driver for medium to long term growth. Outlook for the construction equipment (CE) business is also improving with ramp up in infra activities. Improving cost structure in the construction equipment business, better traction in the high-margin railway business, are likely to help to protect margins. No major capex in the near-term and purchase of stake by Kubota will improve cash flows and strengthen its Balance Sheet," analysts at Dolat Capital said in September quarter result update.
"The company's domestic market share increased to 11.6 per cent in fiscal 2020 from 10.8 per cent in fiscal 2018. Overall, Escorts revenues are expected to register 5-6 per cent growth in fiscal 2021, and 8-10 per cent over the medium term with steady growth across business segments," Crisil said in recent rationale.
Performance of Escorts' tractor business is closely correlated to economic activity in rural markets and its performance has benefitted from higher rural demand for tractors.
"The rural demand continues to remain positive led by lower base of last year, pent-up demand from Covid-19 related lockdowns, timely and widespread monsoon, record Rabi crop production, early Kharif sowing and good availability of retail finance. That said, material increase in covid-19 afflictions in rural markets and its impact on economic activity, and tractor demand will remain a key monitorable," the rating agency said.