Escorts Q2 Review - High Inventory And Raw Material Inflation Are Key Challenges: Dolat Capital

Dolat Capital Report

Escorts Ltd. Ebitda and PAT numbers were broadly in line estimates, operating profit margin stood at 12.6% (-571 bps YoY; -131 bps QoQ), dampened by commodity inflation and negative operating leverage partially offset by price hike.

Revenue at Rs 16.6 billion (-0.6% QoQ) led by 6% YoY de-growth in agri machinery products, offset by 59% YoY growth in construction equipment and 6% YoY growth in railway equipment segment.

Management is hoping -/+2% industry growth for FY22 on high base for the tractor segment. Overall rural sentiment is positive led by high reservoir levels, better retail financing, record crop production and better food grain price. Margin pressure to continue, the company has taken ~8% price hike in 1H FY22 to dilute the impact of commodity inflation.

Channel checks suggest a weak tractor demand due to rising tractor prices However, OEMs are building up inventory in expectation of pent up demand in the festive season. We expect high channel inventory (45-50 days at industry level) to constraint dispatches growth.

Construction division is on strong footing led by government push on infrastructure projects. On the Railway segment it is showing recovery, Order book for the Railway division stood at around Rs 3 billion as of Q2 FY22 end, to improve going further as railways resume operations.

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