Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.

Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Escorts: On a exit mode - Views on News from Equitymaster
  • E-MAIL
  • A  A  A
  • Dec 4, 2002

    Escorts: On a exit mode

    While it has been eventful year for most of the auto companies, it is not the case with tractor manufacturers. They have been affected by poor offtake. However, Escorts' performance has been weaker compared to its peers. The slowdown in demand combined with significant pricing pressure has resulted in the company posting a bigger loss in 2QFY03 compared to the corresponding period previous year.

    (Rs m) 2QFY02 2QFY03 Change 1HFY02 1HFY03 Change
    Net sales 1,653 1,627 -1.6% 4,153 3,300 -20.5%
    Other Income 35 7 -81.3% 559 22 -96.2%
    Expenditure 1,785 1,856 4.0% 4,091 3,676 -10.1%
    Operating Profit (EBDIT) (133) (229) 72.8% 62 (376) -
    Operating Profit Margin (%) -8.0% -14.1%   1.5% -11.4%  
    Interest 152 140 -7.6% 305 325 6.6%
    Depreciation 95 97 2.1% 201 202 0.3%
    Profit before Tax (345) (460) - 115 (881) -
    Extraordinary items - 41 - (33) 6 -
    Tax (75) (15) - 20 (175) -
    Profit after Tax/(Loss) (270) (403) 49.6% 63 (700) -
    Net profit margin (%) -16.3% -24.8%   1.5% -21.2%  

    The sector has been negatively impacted by volatile agricultural sector performance in the last three years, poor monsoon in select states and significant rise in capacity with the entry of multinationals continues to have a large impact on the indian tractor sector. However, there are factors internal to Escorts that are responsible for its poor performance which is indicated by the fact that tractor volumes for the first half of the current fiscal are lower by almost 44% to 8,031 units. Escorts' tractor sales have been erratic ever since a labour strike that the company had to deal with in August-November 2001. After losing significant market share during this period, the company went on an production spree that resulted in tractor sales increasing at a stellar rate of 46% in 4QFY02 (i.e. January-March 2002). But this proved to be a temporary measure. Escorts has once again reverted back to a destocking exercise, which is reflected in its 1HFY03 financials. This means lower production.

    Lower capacity utilisation has negated benefits arising from reduction in employee costs to a large extent in 1HFY03. Operating margins, as a result, has also plummeted sharply in 1HFY03. As per our estimates, tractor industry sales have fallen by 10% in 1HFY03 to 81,336 units (excluding foreign players like John Deere). We expect demand scenario to worsen in 2HFY03 in light of poor monsoon (14 states are facing a drought) in the current fiscal year thus resulting in a 20% fall in volume sales for FY03. Escorts is also likely to post similar performance, as far as the tractor division is concerned.

    The company has entered into an agreement to divest its entire 40% stake in Escorts JCB Ltd, which is expected to fetch Rs 2,140 m for Escorts. Pending certain regulatory clearances, this income is not accounted for in 2QFY03 numbers. Apart from this, the company has also divested its entire 60% stake in Escorts Class that has resulted in a profit of Rs 582 m, which is included in the extraordinary income in 2QFY03. The company has utilised the surplus proceeds to retire some high cost debts that is evident from lower interest outflow in 2QFY03.

    The stock currently trades at Rs 48 implying a P/E multiple of 9.5x FY04E earnings. The company is scouting for a equity partner for its cellular telephony venture, Escotel, which is a positive for the parent company. As of June 2002, Escotel's total number of subscribers stood at 571,887 that translates into a market share of 8%. This combined with exit from identified non-core businesses are the key triggers for the stock price (We expect the company to divest its stake in Escorts Mahle in the near future).



    Equitymaster requests your view! Post a comment on "Escorts: On a exit mode". Click here!


    More Views on News

    Tata Motors Ltd: Another Disappointing Quarter, Management fails to Perform! (Quarterly Results Update - Detailed)

    Aug 14, 2017

    Tata Motors Ltd disappoints again for both India and JLR business. Management commentary indicates a slow year ahead.

    Maruti Suzuki Ltd: Bumpy First Quarter. GST dents Margins! (Quarterly Results Update - Detailed)

    Aug 2, 2017

    GST realted cost impacts Margins, Management expects good year ahead.

    Hero Motocorp Ltd: Riding on the Scooters Growth, Maintains Margins! (Quarterly Results Update - Detailed)

    Aug 1, 2017

    Good Recovery in the Scooters market, expects pick up in exports too.

    Bajaj Auto Limited: Recovery in Exports but Domestic Disappoints! (Quarterly Results Update - Detailed)

    Aug 1, 2017

    New Export Markets picking up, Management expects good recovery in domestic Three wheeler market.

    Bajaj Auto Limited: Finishes the Year with Headwinds. Poised for a Recovery Ahead? (Quarterly Results Update - Detailed)

    Jul 6, 2017

    Ends the year on a Flat note. Expects good recovery in the exports market.

    More Views on News

    Most Popular

    A 'Backdoor' to Multibaggers: It's Like Investing in Asian Paints Ten Years Ago(The 5 Minute Wrapup)

    Aug 10, 2017

    Don't miss these proxy bets on growing companies or in a few years you will be looking back with regret.

    The Most Important Innovation in Finance Since Gold Coins(Vivek Kaul's Diary)

    Aug 10, 2017

    Bill connects the dots...between money and growth, real money and real resources, gold and cryptocurrencies...and between gold, cryptocurrencies, and time.

    Signs of Life in the India VIX(Daily Profit Hunter)

    Aug 12, 2017

    The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.

    Bitcoin Continues Stellar Rise(Chart Of The Day)

    Aug 10, 2017

    Bitcoin hits an all-time high, is there more upside left?

    5 Steps To Become Financially Independent(Outside View)

    Aug 16, 2017

    Ensure your financial Independence, and pledge to start the journey towards financial freedom today!

    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms


    Aug 22, 2017 03:36 PM


    • Track your investment in ESCORTS with Equitymaster's Portfolio Tracker. Set live price alerts, get research alerts and more. Get access now...
    • Add To MyStocks


    Detailed Quarterly Results With Charts