Rakesh Jhunjhunwala holds this top stock, see where Axis Securities has pegged its target price

Rakesh Jhunjhunwala holds 64 lk (4.75% stake) in Escorts worth Rs 900 cr. Jhunjhunwala trimmed 0.9 stake in Escorts last quarter. Jhunjhunwala believes that Tractor sales are only going to improve in coming years as the Government is focussed on improving standard of living in rural areas and Agri theme will benefit Escorts hereon. The market cap of Escorts is over Rs 19000 cr and the stock closed yesterday at Rs 1425 down 1.2% or Rs 18. The 52 week low on Escorts is Rs 526 while 52 week high is Rs 1468. Stock has multiplied 2.8 times from its lows.

Escorts reported a good set of numbers in Q3 FY21. Escorts’s total revenues stood at Rs 2017 crs in Q3FY21 (v/s estimate of Rs 2008 crs, higher by 0.5%) as compared to Rs 1633 crs in Q3 FY20, a growth of 24% YoY. This was on the back of 26% YoY volume growth in tractors and 2% YoY improvement in the realizations. EBITDA came in at Rs 364 crs (v/s our estimate Rs 366 crs) as compared to Rs 212 crs in Q3FY20, a growth of 72% YoY. EBITDA margin stood at 18% (v/s our estimate of 18.2%) as compared to 13% in Q3FY20. The margins improved on the back of favourable product mix, operating leverage and various cost reduction initiatives. Axis Securities maintains their BUY rating with a revised target price of Rs 1600.

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Escorts reported PAT of Rs 281 cr (v/s estimate of Rs 273 cr, higher by 2.8%) as compared to Rs 153 crs in Q3 FY20, a growth of 83% YoY. Escorts Construction equipment (ECE) division posted a topline of Rs 245 cr v/s estimate of Rs 185 cr. The volumes stood at 1254 units. Railway Equipment Division (RED) posted a topline of Rs 117 cr v/s estimate of Rs 150 cr. Order book for the division, at end of December 2020, was more than Rs 330 crs that would get executed in the next 6-8 months.

Escorts see strong demand for Tractors:

The demand for tractors remains positive on the back of adequate and uniform availability of water, better retail financing penetration, recovery in commercial-use demand, record crop production along with hold-up of most crop prices, low channel inventory and strong & improving macro-economic factors. Company sold 9021 tractors in the month of January 2021.(a growth of 49% over last year).
Strong Margin outlook:

Escorts delivered robust margins during Q3 FY21 on the back of of:

1) operating leverage benefits
2) favourable product mix on account of higher sales of above 40HP tractors
3) cost improvement efforts