Homerun for Escorts.

Escorts reported sales growth of 27.5% growth YoY.

The positive market sentiment caused by farm loan waiver will trigger
replacement demand with farmers exchanging old tractors for newbies. The 41-50HP segment that holds a 50 per cent share of the market will be the engine of growth, followed by the 31-40 HP product range with a 34 per cent share.
The 31-50HP tractor range currently garners an 82 per cent market share and will remain stable in the current fiscal. The less than 20 HP tractors, mainly used for horticulture, are pegged at a 3.3 per cent market share, down from the earlier 5.5 per cent share.

Escorts’ major premium range of tractors is available in the range of 37 HP to 75 HP.

The Indian tractor industry is believed to be among the largest tractor markets in volume terms, contributing 35 percent of the global volumes.

Escorts looks a good bet at current price as it is available at earnings yield of 7%, MCap/Sales of 1.6x, RoCE has been consistently improving which currently stands at 26% while profit margins grew to 6.83% which is the highest in last many years for Escorts. Company is almost debt free. We valued the Intrinsic at 670 levels.

Tractors Market share 2018:
Market Share:

Escorts 11.00%
TAFE 12.10%
M&M 42.70%
Others 34.20%

Our recommendation:

BUY on Dips. Target 875-920.