Tractor maker Escorts fared well on the bourses by pocketing more than 9% rise in share price on February 3 as the 16 point program dedicated to the agriculture sector in the Budget 2020 bolstered hopes of an improvement in tractor sales.
The stock was the top gainer in the NSE midcap space and ended at Rs 846.00, up Rs 72.20, or 9.33%. It has touched a 52-week high of Rs 852.80.
The stock has hit a new 52-week high and surged over 83% in the last six months.
The Finance Minister Nirmala Sitharaman in the Budget presented on February 1 increased agriculture credit target to Rs 15 lakh crore for FY21.
The fund allocation for agriculture and rural development ministries was increased to Rs 2.25 lakh.
The tractor-maker on January 29 reported 11.05% on year growth in third-quarter consolidated profit at Rs 154.87 crore.
The domestic tractor industry declined by 6% on year in Q3FY20. The north and central regions degrew by 4.2%, whereas industry contracted 8.1% in the south and the west.
On Saturday, Escorts said its Agri machinery segment registered a 1.2% rise in the sale of tractors to 6,063 units in January 2020. It had sold 5,991 units in January last year.
The domestic sales last month stood at 5,845 units, registering a growth of 1.4% against 5,762 units in the year-ago period.
Exports in January 2020 registered a decline of 4.8% at 218 tractors, against 229 tractors sold in the year-ago month.
The company has diversified business in three different segments namely, Escorts Agri Machinery (EAM), Escorts Construction Equipment (ECE) and Railway Equipment Division (RED).
Given the inherently cyclical nature of the domestic tractor industry and high installed base (record volume of 7.9 lakh units in FY19, FY21 should see volume recovery, but full-blown recovery should be visible only in FY22. We are building in tractor volume growth of 8% & 10% for FY21 & FY22
The company has stated that industry momentum has improved QoQ. In 4QFY20, ESC expects the industry to grow in low single-digit. While FY21 is expected to be a tad subdued, FY22 should see full revival.
The Farmtrac:Powertrac ratio at 39:61improved in 3QFY20 (v/s 36:64 YoY and 41:59 QoQ). Contribution of tractors (40HP and above) in 3QFY20 stood at 54% (v/s 47% YoY)
Going ahead Escorts expects to do a capex of Rs 2.5b each for FY20 and FY21
The Kubota JV has started exporting Escorts’ products under ‘E Kubota’ brand from 3QFY20.
While it has started with 25HP tractors, it will be exporting an entire range (up to 90HP) by adding new products/markets every quarter
Railways business has an order book of Rs 4.5b, which will be executed in the next 12-15 months. It has got approval for 3 new products and has a new product pipeline for FY21
With good monsoons, we expect volumes for the industry to see recovery in FY21.
We expect ESC to gain market share backed by market share gains in ESC’s opportunity market, coupled with a gradual improvement in the company’s competitive positioning in its traditional market.
We also expect healthy traction in the construction equipment and railways business with the margin profile of both the businesses improving ahead.
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