Escorts Ltd, has reported a 189% growth in net profit for the 1QFY01 to Rs 889 m on the back of higher other income. If the extraordinary income from sale of the company's equity stake in Escorts Yamaha is removed from the net profit, they would have reported a net loss of Rs162 m.
For its mainstream business the company's sales have dropped by 17% to Rs 2,689 m in 1QFY01 from Rs 3,239 m in 1QFY00. Tractor sales which account for 85% of the company's revenues has faced a tough period over the first quarter, this has been the main reason for the sales decline. Overall tractor industry sales have fallen due to the drought conditions that prevailed in Rajasthan and Gujarat.
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The company's profit before tax declined by 73% in the 1QFY01, however due to Rs 1,051m the company received from sale of its stake in Escorts Yamaha, the profit after tax actually went up to Rs 889m.
Divestment of past investments holds high importance in the company's ongoing restructuring exercise. The company has decided to exit from non-core activities and concentrate in future on only four areas: agriculture, telecom, information technology and healthcare.
The company has sold off 24% of its 50% stake it holds in Escorts Yamaha Motors as two wheelers is no longer its focus area. This will help the company to reduce its debt levels, improve cash flows and focus on core areas of its business.
Tractor demand is expected to pick up in the latter half of the year as monsoons are expected to be normal. The prospects for Escorts look positive as it is India's second largest tractor manufacturer commanding a 20.2% market share of the tractor industry.
On the current price of Rs 96 Escorts stock is trading at 6.2x FY2000 earnings.
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