Market Cap of the company is1440.31 Crores and the reserves are1712.11. In addition to it there are no long term liabilities and cash flow of the company is also positive(although Not Consistently).
Isn’t it a cash bargain in this case as market cap < Reserves and so all assets come to us for free of cost? Am I missing something?
Its 9x ev/fcff and the expectation built up on the stock is very less. Escorts free cash flow has to grow only at 5% CAGR over next 10 years to deliver 15% CAGR returns.
A share trading below the book value (reserves) doesn’t necessarily deserve to be a bargain. But generally if you look at all its peers, they are trading at premiums to book value. For Escorts, its operational performance, as explained by Samir is not so great to deserve a better valuation, hence the levels.
And for your reference, Cash bargain is a situation when a company holding cash and equivalents ( investments) in excess of debt it has on Balance sheet. This value when it exceeds the Market cap, then the share is essentially trading for nothing. In case of Escorts,
Cash - 160 Cr
Investments - 381 Cr
Total Debt - 350 Cr
Cash + Investments - Total Debt = 190 Cr which is less than the market cap, which it cannot be termed as a cash bargain.
If the company improves its margins it will be a multi bagger and i see the efforts in the direction. Its just patience is required in this stock and it will be re rated in terms valuations compared to its peers
Can we merge it with this thread
Escorts Q1 profit is up 33% and h1 profit is up 74% which I believe is already factored in the price.
The stock already rallied in anticipation.
Is it worthy of holding still knowing that monsoon based stocks are of cyclical nature?
Disclosure: Still holding major part, Exited small amount.