Escorts share price target Rs 1420 and stop-loss Rs 1140 says ICICI Securities

Escorts share price today: Ace Investor Rakesh Jhunjhunwala holds nearly 4.8% stake in Escorts. The ACE Investor believes that the growth in the Rural Economy will benefit the tractor manufacturing companies like Escorts. Farming and construction equipment-maker Escorts share price today is Rs 1209, down Rs 38 or 3.1%. Escorts share price has moved down from Rs 1225 to Rs 1209 in the last one week.

Technical Analysis on Escorts:

ICICI Securities says that Escorts has undergone a healthy higher base formation in the last four months in a rectangular consolidation pattern after a stupendous rally in CY20. It is currently seen forming a potential triple bottom at the rising 52 weeks EMA (currently at Rs 1177) being the previous almost identical lows of December 2020 and February 2021 placed around Rs 1180 levels. Hence, it offers a fresh entry opportunity with a favourable risk reward set up. The stop-loss on escorts is Rs 1140

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ICICI Securities expects Escorts to resume its primary up trend and gradually head towards Rs 1420 levels in coming months. Key point to highlight is that, over past 19 weeks, Escorts has retraced less than 80% of preceding 14 week’s up move Rs 1078 - Rs 1452.

Fundamentals on Escorts:

ICICI Securities highlights that Escorts has significant exposure to the rural economy through its tractor division where it is one of the prominent players thereby commanding domestic market share at 11.4%. As of 9MFY21, Escorts derived 83% of its sales from the tractor segment with rest being constituted by construction equipment (10% of sales) and railways (7% of sales). The domestic tractor space has bucked the downward trend of the overall automotive industry in FY21 by registering double digit YoY growth.

ICICI Securities says that the tractor space is currently enjoying supportive medium-term and longer-term tailwinds. Rural cash flows remain relatively strong due to high crop production and remunerative procurement, while the government continues to focus on doubling farm incomes and improving rural infrastructure.

ICICI Securities says that apart from ongoing strength in the farm equipment category, Escorts is also expected to benefit from improvement in fortunes of the construction equipment segment. Uptick in demand from key economic health-linked sectors such as mining, construction, road building and infrastructure over the past few months is seen driving sales of served construction equipment pockets i.e. pick-n-carry cranes (for material handling), backhoe loaders (for earthmoving) and compactors (for road building).

ICICI Securities says that Escorts is among the world’s largest manufacturers of hydraulic pick-n-carry cranes. The railway equipment division had an order book of >₹ 330 crore as of Q3FY21, which is expected to be executed in the coming approximately six months. However, sharp commodity cost increase, normalisation of product mix within tractors, and high import content in railway equipment division are set to weigh on blended margin performance in coming quarters. Sustained strength in tractors, uptick in construction equipment prospects, healthy Balance sheet and strategic investment of Kubota Corporation are positive factors for Escort.