Escorts: Sustaining post-festival sales momentum key for stock gains

The Escorts stock slipped nearly two per cent after the company reported muted September quarter results. A six-per cent fall in volumes in the tractors segment to 19,750 units led to a higher than expected fall in revenues in the quarter.


In addition to tractors, which account for over three quarters of sales, what dented revenues further was a 21 per cent contraction in construction equipment sales. Railway equipment was the only segment that posted a year-on-year increase in revenues.


The weaker top line weighed on operating profit, which dropped 170 basis points year-on-year and 40 basis points sequentially to 9.6 per cent. The drop in margins q-o-q was on account of higher raw material prices, employee costs and other expenses.


"Going ahead the company expects to improve its revenues and gain market share on the back of new product launches across business units, expansion of distribution reach and technology upgrades," said Nikhil Nanda, CMD, Escorts.


In addition to improving the top line, Escorts is looking at cost optimisation efforts to enhance its profitability.


The street will keep an eye out for tractor sales post the festival season. For October, the company reported a two per cent increase in tractor sales driven by domestic offtake, which came in at 13,000 units. Whether the trend sustains in the coming months will be critical for the stock to reverse its losses.