Buy Escorts; target of Rs 1103: Emkay Global Financial

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Emkay Global Financial's report on Escorts

Tractor volumes have recovered with a flat performance in May’20 on positive customer sentiment, owing to pent-up demand, healthy Rabi output and expectations of good monsoon in 2020. Led by expectations of a strong recovery, we increase ESC’s FY21 tractor volume estimate by 10% to 85,765 units and FY22 volume forecast by 3% to 98,226 units. We expect volumes to grow at a 7% CAGR over FY20-22E. ESC is likely to sustain the market share in domestic tractors going ahead, led by the continuation of aggressive marketing efforts, the success of its dual-brand strategy – Farmtrac and Powertrac series – and the focus on network expansion.

Outlook

We expect a 9% CAGR in revenues and a 20% CAGR in earnings over FY20-22E, driven by volume up-cycle and margin expansion. Retain OW stance in EAP and Buy rating, with a TP of Rs1,103 (Rs898 earlier), based on 16x FY22E core EPS (14x earlier).

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