SPA Securities has given Buy recommendation for Escorts with a target price of Rs. 1577 in its research report issued on Feb 19, 2021

SPA Securities’ report on Escorts

Escorts Ltd. (EL) reported net sales of INR 20.1 bn in 3Q FY21 (~23.5% increase over INR 16.3 bn YoY) and a PAT of INR 2.8 bn (up 83% YoY). Escorts Farm Equipment (EFE) segment volume increased 25.7% while Escorts Construction Equipment (ECE) segment volume increased 20.1%. EBITDAM (excluding other income) improved by 505 bps YoY (-30 bps QoQ) on the back of improving product mix, benign commodity prices and various cost cutting measures and positive operating leverage and. RM cost as % of sales decreased 118 bps while Operating & Manufacturing Expenses decreased 247 bps while employee expenses as % of sales decreased 140 bps.

Outlook

At CMP of INR 1334, stock is trading at 13.1x its FY22E earnings (vs average of 20.8x for last 5 years). We Recommend Buy with a revised fair price estimate of INR 1577 in 12 months, 15.5x its FY22E EPS.

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