ValuePickr Forum

Escorts Limited - Playing for Margin Expansion

Dear All,

My first post to ValuePickr! Would like to know what fellow investors think on Escorts limited. Currently trading at 87. My arguments as under

EBIDTA margins have grown from 6.3% to 9% for 3rd Quarter in line with Management’s Plan. Even if Escorts maintains their current growth rate of 8% for this entire year and Margins at 9%, stock looks very attractive trading only at 5.x for FY13E and FY14E EPS . This implies a mere 10% Industry growth and Margins maintained at 9% can re-rate the stock.
**Key Catalyst **
â Good Monsoon
â Growth from States like Maharashtra and Andhra which were in drought last year.
â Upcoming Elections are expected to bring in more liquidity resulting in to demand for automobiles and consumer durables.
â Appointment of Mr. Nikhil Nanda, Escorts Vision 2020, and focus on EBIDTA at 15% is what we feel will re-rate Escorts Limited.

**Strategic Advantages **
â Strong Hold in North but working on South and West
â New Product Every 6 Months
â Premium Positioning Strategy - Ferrari & FramTrac Executive Series
â Focus on Profitability and Not of Volumes or Capacity Utilization
â Ability to Protect Margins by Increasing Product Prices against Industry Trend of Discounting.

Look forward to hear from you all.

Disclosure : I hold from lower levels and thus may have vested interest.

Where are the negatives???

For putting up the new thread on the companies, you need to balance the investment argument by mentioning the possible negatives. This looks more like a stock recommendation rather than stock for discussion. Please be informed that this is the forum for the discussion and not for recommendation.

Is the last quarter performance one off or repeatable?

How much of the last quarter profits are seasonal?

Hello

I was not sure if the points mentioned presents the complete picture.

As i see the debt had increased on the company. The current debt of the company is almost half of market cap. The performance over different quarters is not consistent.Very difficult to judge if the turn around story had started.

Dear Mr. Manish,

Thank you for your reply. Yes you are right this is a recommendation and sorry about the negatives. I forgot to attach them. Here are the negatives according to me

**Key Risk Factors **

Weak Kharif Output due to Floods
Premium Pricing Strategy imitated by competitors
Failure of Management to Deliver

Look forward to hear from you!

** This discussion. **

Dear Rskm,

Last Qtrs performance was not season. There was demand revival across the entire industry. If you look at M&M Farm Equipment Numbers you will get the picture.

Regarding Profits, the profits were high due to improvement in operational performance. Q1, Q2 EBIDTA margins were around 5 % and Q3 there were able to put up 9% EBIDTA. Main reasons for 9% EBIDTA are as follows

1). No Discounting and focus purely on Profitability (If you check Sales growth of competitors this is clear)

2). Operational Efficiency ( They are consolidating some plants as well as merging operations with a focus on Cost Optimization)

3). An overall Improvement in Industry due to Monsoon has help company maintain Sales despite not discounting and increasing prices.

Hope it answers your queries.

Dear Mr. Venkata

Yes, you are right. The above mention points do not present the complete picture. For the complete picture, just read con call transcripts of Q2, Q3. You will get the big picture.

With Regards to debt , yes it may be high. I am not sure its a long term story or not. I am investing in it for 2 more Quarters on hopes of PE Re rating for the stock due to margin expansion.

Hope this answers your queries.

escorts has no net debt.

Dear RsKm

Consolidated Debt on Balance Sheet as on 201209 is 553.59 Crs.

Escorts Ltd has informed BSE regarding “Escorts Agri Machinery Domestic Volumes grow by 33.5 percent in September 2013”

http://www.bseindia.com/corporates/anndet_new.aspx?newsid=0F249259-CBFD-42B8-86F1-256EB9ECD1E8&flag=C&type=A&scrip_CD=500495

Thank you Manish. Please note this is a historically weak month for Escorts. So my analysis suggest the best month is yet to come.

High growth trend is seen across the entire industry

http://www.bseindia.com/corporates/anndet_new.aspx?newsid=0F249259-CBFD-42B8-86F1-256EB9ECD1E8&flag=C&type=A&scrip_CD=500495 Link: http://www.bseindia.com/corporates/anndet_new.aspx?newsid=0F249259-CBFD-42B8-86F1-256EB9ECD1E8&flag=C&type=A&scrip_CD=500495

Hello Golden Star

I didnt have a chance to see the transcripts. I will check them.

Well if your time frame is for 2 quarters i would say its completely your choice.

But i would request you to see for other business with relatively less debt and better prospects.

I would like to disclose over here that i am invested in VST TILLERS. I might be biased but i felt it has similar business profile but they are into tillers …and have a better balance sheet.

As i said earlier individual risk appetites are different so i would leave it to you

Hello

I was not sure if the points mentioned presents the complete picture.

As i see the debt had increased on the company. The current debt of the company is almost half of market cap. The performance over different quarters is not consistent.Very difficult to judge if the turn around story had started.

Hi! Venkata

Agree with you on VST, it is also very good play in Agri Space!

Dear Mr. Venkata

Yes, you are right. The above mention points do not present the complete picture. For the complete picture, just read con call transcripts of Q2, Q3. You will get the big picture.

With Regards to debt , yes it may be high. I am not sure its a long term story or not. I am investing in it for 2 more Quarters on hopes of PE Re rating for the stock due to margin expansion.

Hope this answers your queries.

Hello

Does this company belong to Escort Finance group? Escort finance ran away with money of poor depositors and still has crores of dues and no sight to settlement. It has been more than 15 years.

Hi Nav_1996. I am not sure about Escort Finance. As my focus is short term (a couple of quarters) I have not done in depth study

Hope this answers your question.

I would be very careful of such promoters for any serious investment. If I can not trust my money with them for a decade I would trust them for a minute.

RJ gets in with 4% stake in Escorts as per latest SHP

Jhunjhunwala Rakesh Radheshyam 5000000 4.08 0 0.00 0 0.00 4.08

How do you find VST is same space?

Sales turnover for VST was 481.66 and net profit 48.57.

Sales turnover for Escorts 3,893.88 and netw profit 69.60

Profit/Sales ratio seems better for VST. Also VST has no debt

VST also very good in the sector. But as indicate earlier my play on Escorts is purely on story of Margin Expansion and PE Re-rating.

Regards

Escorts Ltd: Engineering conglomerate Escorts on Wednesday reported over two fold jump in net profit at Rs. 43.63 crore for the fourth quarter ended September 31, 2013.

Margins slightly below expectations at 10.9%

How do you find VST is same space?

Sales turnover for VST was 481.66 and net profit 48.57.

Sales turnover for Escorts 3,893.88 and netw profit 69.60

Profit/Sales ratio seems better for VST. Also VST has no debt