Escorts (ESCORT)static-news.moneycontrol.com/.../Escorts_31012019.pdf · Escorts reported a healthy set of Q3FY19 numbers Revenues increased 37.4% YoY to | 1,655 crore, with broad

January 29, 2019

ICICI Securities Ltd | Retail Equity Research

Result Update

Healthy Q3, growth to taper in FY20E…

Escorts reported a healthy set of Q3FY19 numbers

Revenues increased 37.4% YoY to | 1,655 crore, with broad based

growth across divisions. Gross revenue from agri equipment

machinery (EAM) grew 36.3% YoY to | 1,293 crore tracking robust

tractor volumes growth of 36% YoY to 25,743 units

Gross revenue from construction equipment grew 44.0% YoY to

| 266 crore (volumes up 30.0% YoY to 1,413 units) while revenue

from railway equipment grew 34.1% YoY to | 97 crore

EBITDA in Q3FY19 grew 38.3% YoY to | 201 crore with consequent

EBITDA margins at 12.1%, up 8 bps YoY. A more than expected

increase in raw material costs was mitigated by lower effective

employee as well as other expenses. EBIT margins of the agri

machinery (tractors) segment came in at 14.3%, down 40 bps QoQ

Consequent PAT was at | 140 crore, up 52% YoY. It was supported

by higher other income (| 24 crore) as well as one-time exceptional

gains (| 11 crore) realised out of transfer of Rough Terrain cranes

business to the JV with M/s Tadano Ltd on a slump sales basis

Tractor growth to taper in FY20E, outperformance to continue

The domestic tractor industry has been at forefront of farm mechanisation

in India. The tractor industry saw record sales volume of 7.1 lakh units (up

22% YoY) in FY18 after ending FY17 at 5.8 lakh units (up 18% YoY).

Industry volumes in FY19E are expected at ~8 lakh units, up 12% YoY.

We expect growth momentum to loosen a bit tracking high base and

revert to its long term averages i.e. ~8-10% in FY20E. Escorts, on the

other hand, has been steadily gaining market share with strongholds in

the northern (Haryana, UP), Rajasthan, eastern (Assam) and central (Bihar,

Madhya Pradesh) belt. Its 9MFY19 domestic tractor sales volumes were at

~69,000 units, up 24.4% YoY vs. industry tractor sales volumes that were

at 6.24 lakh units, up 15.5% YoY; implying market share gains (80 bps)

with market share at December 2018 end at 11.04%.

Construction equipment & Railway segment to witness steady prospects!

Escorts is also a prominent player in the construction equipment market

domestically with key products being cranes, earth moving equipment

etc. This segment, which constitutes ~18% of its topline is witnessing

healthy growth traction and is linked to infrastructure spend domestically.

With central government election in sight and consequent weak execution

in the infrastructure space, we expect the division to see muted growth

prospects in H1FY20 with growth rebounding from H2FY20E onwards. In

the railways segment, which comprises ~6% of its topline, the company

has an order book of ~| 450 crore that will ensure healthy 20% topline

growth, going forward. EBIT margins in this segment are also healthy at

20% that will support further margin improvement, going forward.

Healthy B/S, return ratios, tapering growth to limit valuation, retain HOLD

Escorts has a near debt free balance sheet with marginal short-term debt

amounting to ~| 150 crore as of FY19E with consequent debt: equity at

0.05x. It has also successfully got transformed into a capital efficient

player with resultant RoCE in excess of 20% in FY18-20E. Going forward,

however, given the higher base we expect growth to taper in FY20E.

Consequent net sales & PAT growth in FY20E are expected at ~8.5%. We

build in ~40 bps improvement in EBITDA margins. We value Escorts at

| 700 i.e. 16.0x P/E on FY20E EPS of | 44.1 with a HOLD rating on the

stock.

Escorts (ESCORT) | 670

Rating matrix

Rating : Hold

Target : | 700

Target Period : 12 months

Potential Upside : 5%

What’s changed?

Target Changed from | 735 to | 700

EPS FY19E Changed from | 38.1 to | 40.7

EPS FY20E Changed from | 46.0 to | 44.1

Rating Unchanged

Quarterly performance

(| crore) Q3FY19 Q3FY18 YoY (%) Q2FY19 QoQ (%)

Revenues 1,655.1 1,219.8 37.4 1,528.3 18.4

EBITDA 200.5 140.9 38.3 185.6 27.3

EBITDA (%) 12.1 11.6 56.0 12.1 85 bps

Reported PAT 140.1 77.6 52.4 120.7 36.5

Key financials

| Crore FY17 FY18 FY19E FY20E

Net Sales 4,137 5,055 6,322 6,857

EBITDA 323.7 557.2 752.2 846.6

Net Profit 160.4 344.8 499.1 540.6

FDEPS (|) 13.1 28.1 40.7 44.1

Valuation summary

FY17 FY18 FY19E FY20E

P/E 51.2 23.8 16.5 15.2

Target P/E 53.5 24.9 17.2 15.9

EV / EBITDA 25.4 14.2 10.6 9.3

P/BV 4.1 3.2 2.7 2.3

RoNW 10.8 13.8 16.1 15.3

RoCE 13.7 21.0 23.5 22.7

Stock data

Particular Amount

Market Capitalization (| Crore) 8,212.7

Total Debt (FY18) (| Crore) 27.8

Cash & Investments (FY18) (| Crore) 210.7

EV (| Crore) 7,928.6

52 week H/L (|) 1019/542

Equity capital (| crore) 122.6

Face value (|) | 10

Research Analyst

Shashank Kanodia, CFA

[email protected]

Jaimin Desai

[email protected]

ICICI Securities Ltd | Retail Equity Research Page 2

Variance analysis

Q3FY19 Q3FY19E Q3FY18 YoY (Chg %) Q2FY19 QoQ (Chg %) Comments

Total Operating Income 1,655.1 1,624.2 1,205.0 37.4 1,398.4 18.4 All-round robust performance across segments helped the company post 37%

YoY jump in revenues

Raw Material Expenses 1,026.9 966.4 649.1 58.2 1,003.2 2.4 Higher input costs and slightly adverse product mix pushed up RM cost as a

percentage of sales

(Inc)/Dec in Stock in Trade and WIP 9.8 0.0 95.9 -167.7

Purchase of Traded Goods 114.5 113.7 56.8 101.5 108.4 5.7

Employee Expenses 119.6 113.7 104.9 14.1 113.0 5.8

Other Expenditure 183.7 211.1 153.3 19.9 183.9 -0.1 Strong volume growth led operating leverage benefit helped deliver marginal

sequential savings in other expenses

EBITDA 200.5 219.3 145.0 38.3 157.5 27.3

On a QoQ basis, lower employee & other expenses (-85 bps & -205 bps

respectively) helped boost EBITDA. However, the same was partly offset by

higher raw material cost (up 205 bps)

EBITDA Margin (%) 12.1 13.5 12.0 8 bps 11.3 85 bps

Interest 4.3 1.0 5.9 -27.8 3.9 10.9

Depreciation 21.5 20.8 17.9 19.9 21.5 0.2

Total Tax 69.9 71.2 37.5 86.4 51.6 35.4

PAT 140.1 141.3 92.0 52.4 102.7 36.5 Volume growth and margin expansion supported profitability

Key Metrics

Tractor Segment revenue (|) 1,293 1,289 948 36.3 1,043 23.9 Tractor revenue grew 36.3% YoY, led entirely by volume growth of 36% YoY to

25,743 units

Construction Equipment revenue (| crore) 266 247 185 44.0 249 6.8 Revenue grew 44.1% YoY, mainly driven by strong volume growth of 30% YoY

to 1,413 units

Railway Equipment revenue (| crore) 97 86 72 34.1 106 -8.8 The segment is driven by strong order book, which as of Q3FY19 was at | 450

crore and will be executed over next 13-15 months

Source: Company, ICICI Direct Research

Change in estimates

(| Crore) Old New % Change Old New % Change Comments

Revenue 6,001 6,234 3.9 6,697 6,786 1.3 Revenue growth revised upwards in line with the segmental revenue target guided

by the management

EBITDA 709 752 6.1 847 847 -0.1

EBITDA Margin (%) 11.8 12.1 30 bps 12.7 12.5 (20) bps Moderated margin estimates for FY20E, given limited scope for operating leverage

benefits as well and expect growth rate to taper

PAT 467 499 7.0 564 541 -4.1

EPS (|) 38.1 40.7 7.0 46.0 44.1 -4.1 Downward revision in margin estimates for FY20E results in downward revision in

PAT and consequent EPS estimates

FY19E FY20E


Assumptions

Current Earlier Comments

FY17 FY18 FY19E FY20E FY19E FY20E

Tractor volumes (nos) 63,786 80,417 96,022 105,625 91,767 100,026 We marginally revise upward our volume estimates for FY19E & FY20E primarily

tracking robust performance in 9MFY18 and Escorts DNA to outperform the industry

growth rates

Average ASP (|) 524,567 492,166 493,965 489,621 491,820 502,137 Broadly maintain ASP estimates



Key conference call takeaways

Management outlook/guidance and demand

Industry growth outlook for FY19E has been revised downwards

to 10-12% YoY from earlier 12-15% YoY chiefly on the back of

muted festive season than anticipated

The company expects 3-5% YoY growth at the industry level in

tractor division in Q4FY19E owing to high base of Q4FY18.

However, Escorts is expected to post double digit growth, with

pick-up expected from March onwards

In the construction equipment space, the company expects the

industry to clock strong growth for Q4FY19E as well as double

digit volume growth for FY20. On the margins front, the company

maintained earlier guidance of 4-5% for FY19E

Railways division order book was at ~| 450 crore. The company

expects to register 20-25% YoY growth by FY20E

Escorts has gained market share to the tune of ~1.1% YoY in

9MFY19 (of this 0.2% via better product mix) and expects to

command 12.5-13.0% market share by FY20E

The company retained FY19E exports guidance of ~3000 units

Escorts is set to benefit from faster growth underway in northern

and eastern markets vis-à-vis rest of the country

Dealer inventory levels have normalised to 3.0-3.5 weeks of sales

Sales and margins

Escorts maintained FY19E EBITDA margin expansion guidance of

~100 bps YoY

A ~1.5% YoY rise in input costs and slightly adverse product mix

(higher proportion of <40 hp tractors) impacted margin profile

The company undertook price hikes of ~1.0% in Q3FY19

Discounting incidence is expected to creep up QoQ in Q4FY19E

Share of spares, etc, amounts to ~8-9% of revenue in 9MFY19

Others

The company expects to incur ~| 150-160 crore capex in FY19E

and ~| 250-300 crore capex in FY20E. Of this, ~| 100 crore is

related to machining, which would be put to use in increasing

capacity

Escorts will incur | 90 crore in FY19E towards capex for its JVs

with Tadano (| 30 crore, already incurred) and Kubota (| 60 crore,

to be incurred in Q4FY19E). A further | 60 crore will be incurred in

respect of the Kubota JV in FY20E. Capex for both JVs are in

addition to the earlier mentioned outlay

The company expects to be a part of future Train 18 projects

The company has for the first time participated in government

subsidy related tractor programmes in Assam. It estimates this

segment to be ~10% (i.e. ~80,000 units) of the overall tractor

industry in India

NBFC share of construction equipment financing was at 80-85%

for the company


Company Analysis

Revenue growth to taper in FY20E!

The domestic tractor industry has been at the forefront of farm

mechanisation in India. The tractor industry saw record sales volume of

7.1 lakh units (up 22% YoY) in FY18 after ending FY17 at 5.8 lakh units (up

18% YoY). Industry volumes in FY19E are expected at ~8 lakh units, up

12% YoY. We expect growth momentum to slip a bit tracking a high base

and revert to its long term averages i.e. ~8-10% in FY20E. Escorts, on the

other hand, has been steadily gaining market share. Its 9MFY19 domestic

tractor sales volumes were at ~69,000 units, up 24.4% YoY vs. industry

tractor sales volumes that were at 6.24 lakh units, up 15.5% YoY;

implying market share gains (80 bps) with market share at December

2018 end at 11.04%. Escorts is also a prominent player in the construction

equipment market domestically with key products being cranes, earth

moving equipment etc. This segment, which constitutes ~18% of its total

topline, is witnessing healthy growth traction and is linked to

infrastructure spend domestically. With Lok Sabha elections in sight and

consequent weak execution in the infrastructure space, we expect the

division to see muted growth prospects in H1FY20 with growth

rebounding from H2FY20E onwards. In the railways segment, which

comprises ~6% of its topline, the company has an order book of ~| 450

crore, which will ensure healthy 20% topline growth, going forward.

Exhibit 1: Growth in revenues

3,367

4,093

4,995

6,234

6,786

(15.5)

21.6 22.0

24.8

8.8

(20)

(15)

(10)

(5)

-

5

10

15

20

25

30

0

1000

2000

3000

4000

5000

6000

7000

8000

FY16 FY17 FY18 FY19E FY20E

(%

)

(| crore)

Total Operating income Growth (%)


Exhibit 2: Segmental split in ESC revenues

2,734

3,346

3,958

4,743

5,172

497

607

780

1,109

1,171

228

242

287

382

443

-

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000


(| crore)

Tractors Construction Equipment Railway Equipment



EBITDA margins to expand as utilisation levels improve

EBITDA margins of the agri business have moved up from 8.2% in FY16

to 14.7% in Q2FY19 on the back of 1) strong operating leverage; 2)

vendor rationalisation & value engineering and 3) employee cost

reduction through VRS. Apart from that, break even in the construction

equipment segment (expect EBIT margin to be 4-5%, going forward) &

higher margin in railway segment will supplement growth. Thus, we

expect EBITDA margins to expand to 12.1% & 12.5% in FY19E & FY20E,

respectively

Exhibit 3: Margins, costs annual trends and forecasts

177.0

323.7 557.2

752.2

846.6

5.3

7.9

11.2

12.1 12.5

-

2

4

6

8

10

12

14

0

100

200

300

400

500

600

700

800

900


(%

)

(| crore

EBITDA EBITDA Margins (%)


Exhibit 4: Tractor ASPs on uptrend

531,392

524,567

492,166

493,965

489,621

(1.1)(1.3)

(6.2)

0.4

(0.9)

(7)

(6)

(5)

(4)

(3)

(2)

(1)

-

1

460,000

480,000

500,000

520,000

540,000


(%

)

(| crore)

Tractor ASPs Growth (%)


Expect improvement in profitability as topline, margins grow

We expect an improvement in volumes & margins to impact profitability

positively. In SY09 and SY10, Escorts’ profit margins were in the range of

4-5%. However, the same has declined over the years with average PAT

margins at < 3% over SY11 to FY15. However, the performance has

significantly improved from FY16 onwards. The trend is likely to continue,

going forward. Thus, we expect profits to grow to | 541 crore in FY20E.


Exhibit 5: Increase in profitability continues as higher tractor utilisation scales up margins

84

160

345

499

541

12.1

91.6

114.9

44.8

8.3

-

20

40

60

80

100

120

140

0

100

200

300

400

500

600


(%

)

(| crore)

PAT Growth (%)


Return ratios further expected to move northwards!

Return ratios have historically been very low and reflected the poor

operating performance of the company. Also, capital allocation has been

an issue as capital has been blocked in unprofitable/low margin

businesses. However, the performance has significantly improved from

FY16 onwards. We expect return ratios to improve to 23% & 15% for RoE

& RoCE, respectively, for FY20E.

Exhibit 6: Return ratios to improve as asset turn improves on better utilisation

8.6

13.7

21.0 23.5

22.7

6.0

10.8

13.8

16.1 15.3

0

4

8

12

16

20

24

28


(%

)

ROCE ROE


JVs with Kubota, Tadano to provide next leg of growth

The company entered into a 40:60 JV with Kubota Corporation for

technology collaboration and joint manufacturing of high end tractors,

and separately a 49:51 JV with Tadano Ltd to manufacture rough terrain

cranes and truck cranes of 20 tons and 80 tonne capacity. The capital

outlay for these JVs is at | 120 crore for Kubota (| 60 crore to be incurred

in Q4FY19E, rest in FY20E) and | 30 crore for Tadano (already incurred in

FY19). Through the Kubota JV, the company is aiming for an initial

capacity of 50,000 units per annum from FY21E. The company envisages

exports as a major leg of future growth with the JV expected to help on

that front by utilising Kubota’s global distribution network to export

Escorts tractors. For FY19E, the company expects to achieve export

volumes of 3,000 units and expand it to 8,000-10,000 units per annum by

FY22E. Apart from exports, jointly manufactured products will be sold

domestically by partners through their separate channel networks.


Outlook & valuation

Escorts has a near debt free balance sheet with marginal short-term debt

amounting to ~| 150 crore as of FY19E with consequent debt: equity at

0.05x. It has also successfully transformed into a capital efficient player

with resultant RoCE in excess of 20% in FY18-20E. Going forward,

however, given the higher base, we expect growth to taper in FY20E.

Consequent net sales & PAT growth in FY20E are expected at ~8.5%. We

build in ~40 bps improvement in EBITDA margins. We value Escorts at

| 700 i.e. 16.0x P/E on FY20E EPS of | 44.1 and assign a HOLD rating to

the stock.

Exhibit 7: Valuations

Sales Growth EPS Growth PE EV/EBITDA RoNW RoCE

(| cr) (%) (|) (%) (x) (x) (%) (%)

FY16 3351 4.4 6.8 -41.8 98.1 45.6 4.4 5.9

FY17 4093 22.1 13.1 91.6 51.2 25.4 8.1 11.7

FY18 4995 22.0 28.1 114.9 23.8 14.2 13.5 18.8

FY19E 6234 24.8 40.7 44.8 16.5 10.6 16.5 20.9

FY20E 6786 8.8 44.1 8.3 15.2 9.3 15.3 20.8


Exhibit 8: One year forward P/E (Escorts currently trading at 15.2x)

0

200

400

600

800

1000

1200

Nov-12

Jan-13

Mar-13

May-13

Jul-13

Sep-1

3

Nov-13

Jan-14

Mar-14

May-14

Jul-14

Sep-1

4

Nov-14

Jan-15

Mar-15

May-15

Jul-15

Sep-1

5

Nov-15

Jan-16

Mar-16

May-16

Jul-16

Sep-1

6

Nov-16

Jan-17

Mar-17

May-17

Jul-17

Sep-1

7

Nov-17

Jan-18

Mar-18

May-18

Jul-18

Sep-1

8

Nov-18

Jan-19

(|)

Price 25.0x 20.5x 18.3x 16.0x 9.3x 4.9x 0.4x

Source: Bloomberg, ICICI Direct Research


Recommended history vs. consensus

0

10

20

30

40

50

60

70

80

90

100

0

100

200

300

400

500

600

700

800

900

1,000

1,100

1,200

Jan-19Nov-18Aug-18Jun-18Apr-18Jan-18Nov-17Aug-17Jun-17Apr-17Jan-17Nov-16Aug-16Jun-16Mar-16Jan-16

(%

)(|)

Price Idirect target Consensus Target Mean % Consensus with BUY

Source: Bloomberg, Company, ICICI Direct Research

Key events

Date Event

Jan-08 Escorts discloses weak quarterly financials on PAT; company turns into a loss for Q1SY08 on weak operating performance

Dec-08 Escorts continues weak bottomline performance even though EBITDA margins improve to ~8% levels on account of one-off costs of ~| 18 crore

Feb-09 Escorts ties up with Bank of Rajasthan for tractor and dealer financing

Nov-09 Escorts reports strong EBITDA margins at 12.6% on account of sales growth of ~12% on YoY basis; however profits inflated via tax write-backs

Jan-10 Escorts management targets cost cutting initiatives to improve margins

Mar-10 Escorts business performance improves, profit levels improve owing to positive tractor cycle prior to onset of monsoon,lower costs

Nov-10 Escorts reports annual SY10 results witnesses unexpected rise in other expenses to 18% of net sales led by management payouts

Jan-11 Escorts barely breaks even after weak operating performance results in Q3SY11

Oct-11 Escorts reports results with ~61% rise in debt levels along with weak operating performance for SY11

Feb-12 Escorts announces merger of three group companies, of which Escorts' construction business is main

Apr-12 Promoters hike stake by ~4% in Escorts amid speculation of a takeover battle brewing

May-13 Management says Escorts to launch heavy duty tractors in 2015 along with improved results in Q2SY13

Aug-13 Escorts witnesses buying interest from "Dalal Street bull" Rakesh Jhunjhunwala. Purchases 5% stake in the company

Oct-13 Escorts reports improved financial performance with profit of | 168 crore for four trailing quarters. Company also extends financial year to March

Jan-15 Escorts launches new category of tractors named Anti Lift Tractors "ALT 4000" & "ALT 3500"

Feb-15 Company announces partnership with DLL ( De Lage Landen Financial services) to launch Escorts Credit which would provide retail tractor loans

Apr-15 Rakesh Jhunjhunwala increases stake to 8.14% in Q4FY15; stock closes 8% higher

Apr-15 Escorts enters into JV with Amul group for manufacturing specialised tractors named "Steeltrac", highly succesful speciality tractors


Top 10 Shareholders Shareholding Pattern

Rank Name Latest Filing Date % O/S Position (m) Change (m)

1 Behuria (Sutanu) 31-Dec-18 27.49 33.7 0.00

2 Harparshad & Co., Pvt. Ltd. 31-Dec-18 8.59 10.5 0.00

3 Jhunjhunwala (Rakesh Radheshyam) 31-Dec-18 8.16 10.0 0.00

4 Mathur (Girish Behari) 31-Dec-18 2.51 3.1 0.00

5 T. Rowe Price International (UK) Ltd. 31-Dec-18 2.43 3.0 0.00

6 Goldman Sachs Asset Management International 30-Sep-18 2.27 2.8 0.19

7 UTI Asset Management Co. Ltd. 30-Sep-18 1.89 2.3 -0.43

8 Big Apple Clothing Pvt. Ltd. 31-Dec-18 1.45 1.8 0.00

9 AAA Portfolio Pvt. Ltd. 31-Dec-18 1.38 1.7 0.00

10 The Vanguard Group, Inc. 31-Dec-18 1.28 1.6 0.01

(in %) Dec-17 Mar-18 Jun-18 Sep-18 Dec-18

Promoter 40.0 40.1 40.1 40.1 40.1

FII 21.2 24.4 24.1 22.4 21.7

DII 6.1 5.4 5.7 6.1 4.9

Others 32.7 30.2 30.1 31.4 33.4

Source: Reuters, ICICI Direct Research

Recent Activity

Investor name Value ($ mn) Shares (mn) Investor name Value ($ mn) Shares (mn)

Schroder Investment Management (Hong Kong) Ltd. 13.12 1.29 Kotak Mahindra Asset Management Company Ltd. -5.29 -0.52

Nanda (Nikhil) 4.29 0.42 Canara Robeco Asset Management Company Ltd. -4.07 -0.48

L&T Investment Management Limited 2.73 0.27 UTI Asset Management Co. Ltd. -3.63 -0.43

Goldman Sachs Asset Management International 1.59 0.19 Nanda (Ritu) -4.17 -0.41

Invesco Asset Management (India) Private Limited 0.79 0.08 HSBC Global Asset Management (Hong Kong) Limited -3.00 -0.36

Buys Sells

Source: Reuters, ICICI Direct Research


.

Financial summary

Profit and loss statement | Crore

(Year-end March) FY17 FY18 FY19E FY20E

Total operating Income 4,093.2 4,995.1 6,234.1 6,785.7

Growth (%) 21.6 22.0 24.8 8.8

Raw Material Expenses 1,862.7 2,315.4 2,844.5 3,042.8

Employee Expenses 390.2 431.1 473.9 510.5

Other expenses 381.5 443.4 734.0 780.4

Total Operating Expenditure 3,769.5 4,437.9 5,481.9 5,939.1

EBITDA 323.7 557.2 752.2 846.6

Growth (%) 185.9 72.1 35.0 12.5

Depreciation 63.1 72.5 88.5 100.4

Interest 31.1 28.6 14.8 5.0

Other Income 43.5 59.4 87.4 71.7

PBT 218.3 508.9 749.1 812.9

Total Tax 57.9 164.1 250.0 272.3

PAT 160.4 344.8 499.1 540.6

Growth (%) 91.6 114.9 44.8 8.3

EPS (|) 13.1 28.1 40.7 44.1


Cash flow statement | Crore


Profit after Tax 160.4 344.8 499.1 540.6

Add: Depreciation 63.1 72.5 88.5 100.4

(Inc)/dec in Current Assets -284.6 -613.5 -504.7 -361.0

Inc/(dec) in CL and Provisions 102.6 391.7 194.3 142.3

CF from operating activities 41.5 195.4 277.2 422.3

(Inc)/dec in Investments 4.6 0.0 -50.0 0.0

(Inc)/dec in Fixed Assets -58.5 -105.3 -159.9 -252.0

Others 9.0 0.0 0.0 0.0

(Inc)/dec in Deferred Tax Asset -6.2 47.0 0.0 0.0

CF from investing activities -111.5 -123.6 -319.3 -312.4

Issue/(Buy back) of Equity 11.6 0.0 17.0 0.0

Inc/(dec) in loan funds 128.7 -200.4 122.2 -100.0

Dividend paid & dividend tax -13.2 -19.7 -21.1 -28.2

Inc/(dec) in Sec. premium 0.0 0.1 0.0 0.0

Others -103.2 231.8 -21.4 0.0

CF from financing activities 23.9 11.7 96.6 -128.2

Net Cash flow -46.1 83.5 54.5 -18.3

Opening Cash 274.5 228.4 311.9 366.4

Closing Cash 228.4 311.9 366.4 348.1


Balance sheet | Crore


Liabilities

Equity Capital 122.6 122.6 122.6 122.6

Reserve and Surplus 1,868.6 2,425.5 2,899.0 3,411.4

ESOP 0.0 0.0 0.0 0.0

Total Shareholders funds 1,991.2 2,548.1 3,021.6 3,533.9

Total Debt 228.2 27.8 150.0 50.0

Other non-current Liabilities 16.9 29.1 29.1 29.1

Long-term Provisions 19.4 15.3 15.3 15.3

Total Liabilities 2,255.6 2,620.3 3,216.0 3,628.3

Assets

Gross Block 2,336.4 2,371.0 2,521.0 2,771.0

Less: Acc Depreciation 825.9 849.1 925.2 1,012.3

Net Block 1,510.5 1,521.9 1,595.9 1,758.8

Capital WIP 26.6 46.8 46.8 46.8

Total Fixed Assets 1,537.0 1,568.7 1,642.7 1,805.6

Net Intangible Asset 52.0 53.1 50.6 39.3

Investments 422.8 413.9 553.9 613.9

Inventory 429.5 541.1 757.0 804.6

Debtors 458.0 600.0 768.6 929.5

Loans and Advances 15.6 18.1 23.9 21.8

Other Current Assets 271.1 634.5 737.0 891.5

Cash 228.4 311.9 366.4 348.1

Total Current Assets 1,402.6 2,105.4 2,652.9 2,995.6

Creditors 893.8 1,225.5 1,451.8 1,487.3

Provisions & Other Curr.Liab 360.0 406.2 382.7 478.7

Total Current Liabilities 1,253.8 1,631.7 1,834.5 1,966.0

Net Current Assets 148.8 473.8 818.4 1,029.6

Deferred Tax Asset 47.0 -19.7 -19.7 -19.7

Other non-current assets 36.7 102.5 121.9 122.3

Application of Funds 2,255.6 2,620.3 3,216.0 3,628.3


Key ratios


Per share data (|)

EPS 13.1 28.1 40.7 44.1

Cash EPS 18.2 34.0 47.9 52.3

BV 162.4 207.9 246.5 288.3

DPS 1.2 1.4 1.5 2.0

Cash Per Share 18.6 25.4 29.9 82.6

Operating Ratios

EBITDA Margin (%) 7.9 11.2 12.1 12.5

PBT / Net sales (%) 5.3 10.2 12.0 12.0

PAT Margin (%) 3.9 6.9 8.0 8.0

Inventory days 36.8 35.5 38.0 43.3

Debtor days 40.8 43.8 45.0 50.0

Creditor days 79.7 89.5 85.0 80.0

Return Ratios (%)

RoE 8.1 13.5 16.5 15.3

RoCE 11.7 18.8 20.9 22.7

RoIC 13.0 21.4 24.1 22.5

Valuation Ratios (x)

P/E 51.2 23.8 16.5 15.2

EV / EBITDA 25.4 14.2 10.6 9.3

EV / Net Sales 2.0 1.6 1.3 1.2

Market Cap / Sales 2.0 1.6 1.3 1.2

Price to Book Value 4.1 3.2 2.7 2.3

Solvency Ratios

Debt/EBITDA 0.7 0.0 0.2 0.1

Debt / Equity 0.1 0.0 0.0 0.0

Current Ratio 1.1 1.3 1.5 1.6

Quick Ratio 0.9 1.1 1.3 1.1



ICICI Direct coverage universe (Auto & Auto Ancillary)

CMP M Cap

(|) TP(|) Rating (| Cr) FY18 FY19E FY20E FY18 FY19E FY20E FY18 FY19E FY20E FY18 FY19E FY20E FY18 FY19E FY20E

Amara Raja (AMARAJ) 776 835 Hold 13261 27.6 30.2 39.8 28.1 25.7 19.5 14.8 13.1 10.2 23.3 22.0 24.7 16.0 15.2 17.1

Apollo Tyre (APOTYR) 211 260 Buy 12056 12.7 16.2 21.6 16.7 13.0 9.8 7.5 7.5 6.4 7.8 9.3 11.1 7.4 9.1 10.7

Ashok Leyland (ASHLEY) 83 115 Hold 23335 5.3 7.1 8.9 15.5 11.6 9.3 10.2 8.3 6.2 28.1 32.1 34.6 21.9 25.1 26.2

Bajaj Auto (BAAUTO) 2626 2410 Hold 75999 140.6 153.3 169.5 17.6 16.2 14.6 11.8 10.4 8.9 22.9 22.4 22.3 21.5 20.7 20.4

Balkrishna Ind. (BALIND) 848 1025 Hold 16384 38.2 50.6 59.7 22.2 16.8 14.2 16.5 12.0 10.0 22.4 26.1 26.2 18.1 26.1 26.2

Bharat Forge (BHAFOR) 480 700 Buy 22329 16.2 23.3 28.0 29.6 20.6 17.2 17.6 14.5 12.2 18.2 22.9 25.7 17.3 23.3 23.9

Bosch (MICO) 18526 20500 Hold 58172 449.1 593.7 661.5 41.3 31.2 28.0 27.0 21.9 19.2 14.4 16.4 16.3 21.4 24.4 24.3

Eicher Motors (EICMOT) 20050 25500 Buy 54656 718.9 926.0 1162.1 27.9 21.7 17.3 20.0 17.0 13.2 39.1 35.9 35.0 29.9 27.9 26.9

Escorts (ESCORT) 670 700 Hold 8213 28.1 40.7 44.1 23.8 16.5 15.2 14.2 10.6 9.3 18.8 20.9 20.8 13.5 16.5 15.3

Exide Industries (EXIIND) 230 285 Buy 19563 8.2 9.3 11.5 27.9 24.8 20.0 16.8 14.6 11.8 19.1 18.9 21.2 13.0 13.2 14.7

Hero Moto (HERHON) 2670 3350 Buy 53323 185.1 186.6 209.6 14.4 14.3 12.7 9.5 9.2 7.9 42.4 41.0 41.3 31.4 29.0 29.1

JK Tyre & Ind (JKIND) 96 100 Hold 2175 2.9 12.9 21.9 32.9 7.4 4.4 9.8 6.0 4.6 7.7 12.6 15.4 3.6 15.0 18.6

Mahindra CIE (MAHAUT) 232 280 Buy 8780 9.5 14.5 17.7 24.5 16.0 13.2 13.7 9.9 8.2 9.8 12.9 13.7 11.2 15.0 17.1

Maruti Suzuki (MARUTI) 6520 6000 Hold 196122 255.6 250.3 284.4 25.5 26.0 22.9 13.5 13.8 11.8 21.1 17.8 18.8 18.5 16.3 16.6

Motherson (MOTSUM) 151 165 Hold 47622 5.1 6.2 9.0 29.8 24.2 16.7 10.8 9.0 6.7 16.3 19.6 26.1 17.4 19.4 23.5

Tata Motors (TELCO) 173 200 Hold 51779 26.8 2.3 17.0 6.9 79.0 10.9 2.7 3.2 2.6 9.1 6.1 8.2 10.3 4.3 8.5

Wabco India (WABTVS) 6263 7200 Hold 11899 143.8 192.0 211.9 43.5 32.6 29.6 30.1 24.7 21.1 17.9 19.7 18.0 25.1 27.6 25.4

Sector / Company

RoE (%)EPS (|) P/E (x) EV/EBITDA (x) RoCE (%)



RATING RATIONALE

RATING RATIONALE

ICICI Direct endeavours to provide objective opinions and recommendations. ICICI Direct assigns ratings to its

stocks according to their notional target price vs. current market price and then categorises them as Strong

Buy, Buy, Hold and Sell. The performance horizon is two years unless specified and the notional target price is

defined as the analysts' valuation for a stock.

Strong Buy: >15%/20% for large caps/midcaps, respectively, with high conviction;

Buy: >10%/15% for large caps/midcaps, respectively;

Hold: Up to +/-10%;

Sell: -10% or more;

Pankaj Pandey Head – Research [email protected]

ICICI Direct Research Desk,

ICICI Securities Limited,

1st Floor, Akruti Trade Centre,

Road No 7, MIDC,

Andheri (East)

Mumbai – 400 093

[email protected]


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Escorts (ESCORT)static-news.moneycontrol.com/.../Escorts_31012019.pdf · Escorts reported a healthy set of Q3FY19 numbers Revenues increased 37.4% YoY to | 1,655 crore, with broad

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