Rakesh Jhunjhunwala holds 64 lk (4.75% stake) in Escorts worth Rs 880 cr. Jhunjhunwala trimmed 0.9 stake in Escorts last quarter. Tractor sales have been robust and the Big Bull says that the Government is focussed on improving standard of living in rural areas and Agri theme based this Auto sector stock will benefit Escorts from here on. Rakesh Jhunjhunwala has seen the market cap of Escorts rise to over Rs 18500 cr. The 52 week low on Escorts is Rs 526 while 52 week high is Rs 1468. Escorts share price today is Rs 1365 down Rs 14 or 1%.

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ICICI Securities says that Escorts reported robust Q3 FY21 results. Total operating income for Q3 FY21 came in at Rs 2017 cr, up 23.5% YoY tracking 25.7% YoY growth in tractor volumes to 31562 units. Within segments, gross revenue from tractors was at Rs 1653 cr (up 28% YoY) while construction equipment (CE) revenues grew 13% YoY to Rs 245 cr) and railway equipment division (RED) reported 5.7% YoY revenue decline to Rs 117 cr. EBITDA margins came in at 18% (down 30 bps QoQ), with savings in employee costs and other expenses nearly negating gross margin contraction. Consequent standalone PAT in Q3 FY21 came in at Rs 280.6 cr, up 83.3% YoY.

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Escorts Topline performance set to remain healthy over medium term:

Domestic tractor industry continues to outperform the rest of the automotive industry on the back of sustained supportive tailwinds in the form of record crop procurement, remunerative crop prices and government commitment towards augmenting farm incomes as well as rural infrastructure. Escorts expects healthy growth momentum witnessed, thus far, in FY21E to continue with the upcoming Rabi season seen being as strong as the Kharif season gone by.

Within tractors, construction demand is seen recording strong offtake over the coming quarters (currently at half of usual 25-35% of overall mix) on the back of pent-up release. ICICI Securities build 10% tractor volume CAGR in FY21E-23E. CE division is seen benefiting from improvement in infrastructure, mining and construction activity in recent months along with renewed push to infrastructure in the recent Union Budget. RED orderbook of > Rs 330 cr is to be executed in six to eight months, with performance post FY21E expected to return to pre Covid levels once fresh railway order tendering activity normalises.

Escorts Valuation & Outlook:

Sales, PAT CAGR in FY21E-23E is seen at 15%, 11%, respectively.

Escorts believe present valuations adequately capture topline growth prospects and await:

(a) margin alleviation signs
(b) firm plans for cash utilisation before turning positive again

ICICI Securities maintain HOLD rating on Escorts and value it at Rs 1500 on SOTP basis (unchanged from previous target price; assign 17x P/E on core 23E EPS & 25% holding company discount to treasury shares.