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: Restructuring benefits? - Views on News from Equitymaster
  • E-MAIL
  • A  A  A
  • Dec 14, 2000

    Escorts: Restructuring benefits?

    Escorts Ltd, the tractor major, has seen its performance deteriorate over the past year. The slowdown in the tractor industry has taken its toll on the company's bottomline. Though in 1HFY01, Escorts net profit grew by 71% YoY to Rs 931 m, this was mainly due an extraordinary gain of Rs 1.1 bn from sale of its 24% stake in Escorts Yamaha. The company's operating profit for 1HFY01, declined by 34% YoY due to lower tractor volumes during this period.

    The company's restructuring process which started a few years ago, has yet to show the desired results. However we believe its heading in the right direction. The company, in future plans to concentrate on telecom, agriculture, health and information technology. This is probably because these areas of its business are performing well. Its telecom subsidiary, Escotel's subscriber base has grown by 100% in the past year. The company enjoys the highest market share in Kerala, Haryana and West Uttar Pradesh.
    (Rs m) 1HFY00 1HFY01 Change
    Sales 6,556 5,637 -14.0%
    Expenditure 5,629 5,028 -10.7%
    Operating Profit (EBDIT) 928 609 -34.4%
    Operating Profit Margin (%) 14.2% 10.8%  
    Extraordinary gains - 1,051  
    Profit after Tax/(Loss) 545 930 70.8%
    Net profit margin (%) 8.3% 16.5%  

    As part of this restructuring it has decided to reduce its stake in several group companies. In its future plans, divestment assumes importance and surplus funds received from this will be used to retire the debt of the company and improve its cash flows.

    Its business process re-engineering (BPR) exercise will improve employee productivity and reduce material costs, so as to increase its operating margins. As per the recommendations of Andersen Consulting, the company hopes to reduce material costs by Rs 8,000 per tractor per annum. Though the company did manage to control costs in the 1HFY01, the declining tractor market has not resulted in an improvement in its operations.

    In the past two years with a view to focusing on the above core areas, Escorts has reduced its stake in Escorts JCB (their construction equipment arm) to 40%, Escorts Yamaha to 26% and Hughes Escorts Communications to 26%. This has resulted in an inflow of approximately Rs 2 bn.

    The company's share price performance has been dismal in the current year. From a high of Rs 263 in February 2000, it is currently trading at Rs 113. This has been due to declining volumes in the tractor industry coupled with the fact that the company's restructuring exercise is yet to show desired results. Though the 2H is expected to be better for the tractor industry, the overall performance for the current year is expected to be dismal.

    Tractor major market shares
    (%) 1HFY00 1HFY01
    M & M 27.4% 32.9%
    Escorts 19.0% 16.9%
    PTL 19.0% 18.2%
    Massey 17.0% 11.4%
    Eicher 7.1% 6.5%

    The future prospects however look better as the company is on the right track. Tractors, though dependant on the vagaries of the monsoon will always assume importance in India due to the fact that ours is an agrarian economy.

    On the current price of Rs 113, Escorts is trading at 8.2x FY01E EPS of Rs 13.8.



    Equitymaster requests your view! Post a comment on "Escorts: Restructuring benefits?". 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 Profitable Investment in the History of the World(Vivek Kaul's Diary)

    Aug 8, 2017

    'Yes, it looks like a bubble. And, yes, it's like buying a lottery ticket. But there's something happening that has never happened before. It's an evolutionary leap in money itself.'

    Should You Invest In Bharat-22 ETF? Know Here...(Outside View)

    Aug 8, 2017

    Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...

    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?

    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 21, 2017 (Close)


    • 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


    Compare Company With Charts