Escorts surges 8% on expectation of improvement in tractor sales

Shares of Escorts surged 8 per cent to Rs 834 on the BSE on Monday, erasing their entire 4 per cent fall registered on Saturday on expectation of improvement in tractor sales. The stock surpassed its 52-week high of Rs 836 touched on Thursday January 30, 2020.

The government increased agriculture credit target to Rs 15 trillion for FY21. Total fund allocation for ministry of agriculture and farmer welfare as well as ministry of rural development increased to Rs 2.55 trillion in FY21.

Emkay Global Financial Services expects continued focus on agriculture and rural development will support government’s vision of doubling farmer income by 2022. This will marginally positive for tractor, two wheelers and passenger vehicles demand.

Meanwhile, Escorts on Saturday announced its agri machinery segment registered 1.2 per cent rise in sale of tractors to 6,063 units in January 2020. It had sold 5,991 units in January last year, the company said in a filing to the BSE.

On month-on-month (MoM) basis, vo,umes grew 47 per cent. The company had sold a total of 4,114 units in December.

The company has diversified business in three different segments namely, Escorts Agri Machinery (EAM), Escorts Construction Equipment (ECE) and Railway Equipment Division (RED).

With today’s gain, the stock has rallied 35 per cent in the past one month, as compared to a 4 per cent decline in the S&P BSE Sensex.

In the October-December quarter (Q3FY20), the company’s earnings before interest, tax, depreciation and amortization (Ebitda) margins improved 89 basis points (bps) year-on-year (YoY) to 13 per cent, driven by better mix and cost savings. On sequential basis, the Ebitda margins expanded 340 bps.

Despite improved momentum in industry volume in recent months, analysts at Antique Stock Broking expect strong sustained industry volume to recover in FY21e as they see good 2/3 crop cycle at the farmers' end with good rainfall across regions and higher water tables in reservoirs.