Escorts Ltd has reported a 62.6% YoY drop in its 1QFY02 net profit to Rs 332 m. The company would have reported a loss of Rs 95 m had it not been for extraordinary gains of Rs 523 m from profit on sale of its balance equity stake of 26% in Escorts Yamaha.
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The company's sales growth declined by 7% YoY to Rs 2,500 m in 1QFY02, as a result of a slowdown in its main business of tractors. Tractors contribute to around 85% of the company's overall sales. The negative agricultural growth in FY01 coupled with high inventory levels continues to keep the tractor industry posting negative growth rates.
Escorts has lost market share in the past year to Mahindra & Mahindra and some other new players. Escorts market share went down from 19.1% in FY00 to 17.8% in FY01 as a result of aggressive marketing by others.
On the costs front, the company has managed to reduce its consumption of raw materials as sales were depressed in 1QFY02. Besides, staff costs also remained unchanged in this quarter as compared to the corresponding quarter of the previous year. Other expenses rose sharply by 78% from Rs 236 m in 1QFY01 to Rs 421 m in 1QFY02, resulting in only a 2.4% decline in overall expenses. The company's operating margins fell from 10.9% in 1QFY01 to 6.5% in 1QFY02, a decline of 440 basis points.
Divestment of investments is a thrust area for the company currently as part of its restructuring exercise. It will exit from non-core activities and concentrate in future on only four areas: agriculture, telecom, information technology and healthcare.
The company has now sold off its 50% stake in Escorts Yamaha as two wheelers is not its focus area. As a result its cash flows should improve and debt levels should go down.
On the current price of Rs 56.6 it is trading at 3.8xFY01 EPS of Rs 14.9.
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