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Chola Securities
Escorts (Buy)
CMP: ₹659.65
Target: ₹1,057
Escorts (ESC) is one of India’s prominent players in the automotive/ tractor industry, with an overall market share of 11.1 per cent in the domestic tractor industry.
ESC and Kubota Corporation, Japan’s biggest tractor manufacturer have announced their global joint venture to manufacture high end technology tractors for domestic and export geographies. ESC will hold 40 per cent stake in this JV, which will enable it in leveraging Kubota’s technology and overseas distribution network, spread across 100 countries.
Valuation: The management expects a 12 per cent-15 per cent growth in the domestic tractor industry for FY19. The domestic and export penetration which would be achieved through this partnership would further aid growth. At CMP, the stock is trading at P/E of 12.7X/10.6x on FY19E/FY20E EPS, respectively. We arrive at a price target of INR ₹1,057 based on P/E of 17x FY20EPS and maintain a ‘buy’ rating on the stock.
Risks: Slow pace in infrastructure spending, further increase in commodity prices.
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