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Escorts 3QFY01: On the right track

Jan 25, 2001

Escorts has reported an 86% fall in net profit to Rs 79 m for the 3QFY01. However, the company's 3QFY01 perfomance is better than its appears. This is mainly due to the fact that its 3QFY00 net profit was spruced up due to an extraordinary gain of Rs 696 m, without which it would have reported a loss in the 3QFY00. Infact the company's quality of earnings too has improved as its other income has declined by 96% YoY.

(Rs m) 3QFY00 3QFY01 Change
Sales 2,684 3,060 14.0%
Other income 75 3 -96.0%
Extraordinary items 696 -  
Profit after Tax/(Loss) 570 79 -86.2%
Net profit margin (%) 21.2% 2.6%  
No. of Shares (eoy) (m) 72.2 72.2  
Diluted number of shares 72.2 72.2  
Diluted Earnings per share* 31.6 4.4  

This is the result of the company's ongoing restructuring exercise. The company is getting out of businesses which are no longer its focus area. In future, the company plans to concentrate on healthcare, agriculture, telecom and information technology as its four focus areas.

The company's net sales have grown by 14% YoY due to an improvement in tractor demand in 3QFY01. The company's sales fell by 11% YoY in 2QFY01 and it reported a net of only Rs 41 m. Hence 3QFY01 over 2QFY01 performance has been better for Escorts due to demand improvement and partly due to the fact that the rabi season has started.

Tractors account for 85% of the company's revenues. Overall tractor industry sales fell in the current year due to the drought conditions and inventory spill over from last year.

On the negative side the company will face a contingent liability of Rs 60 m if it loses the case against the Haryana government for imposition of an additional tax during FY2001.

On the current price of Rs 115, Escorts is trading at 7.4x FY00 EPS of Rs 15.6

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