November 06, 2015

RESULT UPDATE - Q2FY16

Escorts
Sensex: 26304

CMP: INR 159

Target: INR 180

Automobiles (Tractors)

Escorts reported mixed set of results with topline coming largely inline with our estimates at INR 8017 mn but profit came
in higher than estimates at INR 171 mn on the back of higher than expected decline in raw material cost. While Railways
and Construction Equipment (CE) segment have shown decent improvement in performance, Agri- machinery segment is
witnessing significant pressure because of scanty rainfall. We change our rating from Hold to Buy with target price of
INR 180 based on 6.25x EV/EBITDA.
Tractor Segment- Volume plunged 24%, Realisation flat
Tractor volumes declined by 23.8% to 11438 units on the back of
scanty rainfall and low farm income. The company managed to
increase its market share to 10.6% v/s 10.0% YoY. Realisation/
Unit was largely flat at INR 533076/unit. Tractor volumes have
declined by 22.3% during H1FY16 and we expect improvement in a
major way only in FY17E (21.9% volume growth likely). Escorts
had launched Euro 45 & Euro 50 tractors in the 40-50 HP category
during H1. The Anti-lift tractors that the company had launched
during Q4FY15 are witnessing decent demand and clocking
monthly sales of ~400-450 units. Among other products, the
company is likely to launch speciality tractors in the low HP
category for horticulture and orchards over the next one year.

equipment division revenue increased by 13.1% YoY to INR 535

mn on the back of execution of orders for the new products that
Escorts has introduced like axle mounted disc brakes, brake
systems and couplings. EBIT grew by 75.6% YoY to INR 80 Mn. EBIT
margin expanded more than 800 bps to 14.9% on the back of
favourable product mix and operating leverage. The order book
for the segment stands at INR 650 mn which is executable over the
next 3-4 months.
Adjusted EBITDA Margins largely flat
Adjusted EBITDA Margin (excl. the expenses on one-time export
order in Q2FY15) was largely unchanged at 3.6%. Employee cost
grew 215 bps to 13.2% even though value-wise it stood largely
unchanged at INR 1060 mn. Other expenses (adjusted) de-grew
by 13.9% YoY even though as a % of sales it increased by 96 bps
to 15.2%.

Construction Equipment volume down 18%

The CE segment volume declined 18.1% to 612 units led by decline
in Pick & Carry (P&C) cranes and Back hoes. Industry volume for
its major products i.e. P&C cranes and Backhoes declined by
10.0% and 7.0% respectively. Industry participants are engaging
in discount war to garner market share but Escorts restrained
from the same which resulted in market share loss for the company.
Revenue for the segment grew by 2.5% to INR 1245 mn whereas
realisation jumped 25.1% to INR 2034248/unit on the back of
higher spare part sales and sale of specialized products.

Outlook & Valuation

The management's focus on increasing the sale of higher HP
tractors is likely to improve the overall realization for Escorts.
The outlook for its CE and Railway segment is also promising
given the emerging opportunities in the respective sectors which
should provide further boost to profitability. We expect top line &
bottom line to grow at a CAGR of 4.0% & 65.1% respectively between
FY15- 17E. We change our rating from Hold to Buy with target
price of INR 180 based on 6.25x EV/EBITDA.

Performance of other segments

The auto ancillary segment revenue declined by 9.6% to INR 242
mn and segment loss reduced by 33.6% to INR 47 mn. The railway
Shareholding (%)
Promoters
FIIs
DIIs
Others

NSE Code

ESCORTS

Growth (%)

7.04%

-5.12%

-9.62% 26.34%

3.39

Bloomberg Code

EBIDTAM (%)

6.01%

3.95%

4.88%

7.77%

2439

994

1042

2294

122.94%

-38.89%

20.45

8.33

8.74

19.23

P/E (x)

5.79

15.67

18.55

8.42

EV/EBIDTA

6.46

11.02

11.70

5.70

Net Debt/Equity

0.14

0.13

0.10

0.07

RoCE (%)

9.02%

7.93%

5.03% 12.53%

RoNW

9.26%

5.38%

5.61% 11.67%

Oct-15

Sep-15

Jul-15

Aug-15

Jun-15

Free Float (INR Bn)

Apr-15

40
May-15

2W Avg. Qty.NSE
Mar-15

60

Jan-15

52 Week H/L

Feb-15

ESCO.BO

Shares Outstanding (mn)

80

Dec-14

ESC IN

Reuters Code

Mcap (INR bn)

Oct-14

46962

500495

100

Nov-14

FY17E

37171

BSE Code

Face Value

prashant.biyani@spagroupindia.com
Ph. No. 91 33 4011 4800 (Ext. 833)

FY16E

41127

8.34

120

Prashant Biyani

FY15

65017

43.01

Relative Price Performance

Sensex

18M FY14*

Net Sales

45.26

Escorts

Y/E (INR mn)

Key Data

Sep-15

10
21.2
189.00/101.60
1853604
12.08

Beta
*

122.58

1.37

Adj. PAT
Growth (%)
Adj. EPS (INR)

4.84% 120.13%

The company has changed its accounting year from September ending to March ending to comply with the provisions of Companies
Act 2013. FY14 was 18 month accounting year hence figures have been annualised whereever necessary.

Automobiles (Tractors)
Quarterly Financials
Particulars (INR Mn)

Q2FY16

Q1FY16

QoQ%

Q4FY15

8017

9777

-18.01%

8177

10464

9926

-19.24%

17794

21217

-16.13%

Other Income

148

112

31.88%

255

153

103

43.68%

260

204

27.30%

Total Income

8164

9889

-17.44%

8432

10616

10029

-18.59%

18054

21421

-15.72%

Raw Material Consumed

5844

5824

0.35%

5148

6195

7416

-21.19%

11668

14272

-18.25%

Stock Adjustment

(941)

330

NA

183

761

(839)

12.08%

(611)

(123)

397.80%

549

598

-8.17%

464

530

483

13.53%

1146

1056

8.49%

Employee Expenses

1060

1083

-2.13%

951

1108

1099

-3.53%

2143

2260

-5.15%

Other Expenses

1218

1373

-11.30%

1211

1381

1746

-30.21%

2592

3159

-17.97%

TOTAL EXPENDITURE

7731

9207

-16.04%

7957

9974

9904

-21.94%

16938

20625

-17.88%

EBITDA

286

570

-49.81%

220

490

22 1177.23%

856

592

44.49%

Depreciation

155

161

-4.15%

212

165

135

14.69%

316

284

11.35%

EBIT

132

409

-67.82%

325

(112)

NA

540

309

74.94%

Interest

112

137

-18.85%

159

137

141

-20.75%

249

275

-9.43%

PBT

168

383

-56.25%

104

340

(150)

NA

551

238

131.51%

Tax

21

-71.36%

(24)

(16)

(72)

NA

27

(25)

NA

PAT

162

363

-55.39%

127

357

(79)

NA

524

263

99.73%

(9)

(5)

74.51%

(313)

-97.15%

(14)

(312)

-95.57%

APAT

171

368

-53.59%

126

353

234

-27.08%

538

574

-6.24%

Equity

1193

1193

0.00%

1193

1193

1193

0.00%

1193

1193

0.00%

10

10

0.00%

10

10

10

0.00%

10

10

0.00%

1.43

3.08

-53.59%

1.06

2.96

1.96

-27.08%

4.51

4.81

-6.24%

Net Sales

Purchase of Finished Goods

Extra-ordinary Items

Face Value
EPS

Q3FY15 Q2FY15

YoY%

H1FY16 H1FY15

YoY%

EBITDA (%)

3.57%

5.83% (226 bps)

2.69%

4.68%

0.23%

334 bps

4.81%

2.79%

202 bps

OPM (%)

5.41%

6.98% (156 bps)

5.81%

6.14%

1.26%

415 bps

6.27%

3.75%

252 bps

APAT (%)

2.13%

3.76% (163 bps)

1.54%

3.37%

2.36%

(23 bps)

3.03%

2.71%

32 bps

Source: SPA Research

Automobiles (Tractors)
Quarterly Segmental Financials
Particulars (INR Mn)

Q2FY16

Tractor Volumes

Q1FY16

QoQ%

Q4FY15

Q3FY15

Q2FY15

YoY%

H1FY16

11438

14875

-23.1%

11036

15881

15013

-23.8%

26313

533076

546024

-2.4%

556035

533820

534876

-0.3%

540395

612

508

20.5%

737

801

747

-18.1%

1120

2034248

1839370

10.6%

1789959

1763670

1626372

25.1%

Agri Machinery Products

6097

8122

-24.9%

6136

8478

8030

-24.1%

14219

Auto Ancillary Products

242

290

-16.3%

284

255

268

-9.6%

532

Tractor Realisations
CE Volume
CE Realisations

H1FY15

YoY%

32862 -19.9%
532357

1.5%

1466 -23.6%

1945857 1654707

17.6%

REVENUES

Railway Equipments

17494 -18.7%
498

7.0%

901

13.6%

535

488

9.7%

546

391

473

13.1%

1023

1245

934

33.2%

1319

1413

1215

2.5%

2179

2426 -10.2%

Agri Machinery Products

411

735

-44.1%

282

661

569

-27.8%

1145

1350 -15.2%

Auto Ancillary Products

(47)

(43)

8.9%

(27)

(47)

(70)

-33.4%

(89)

(162) -44.9%

80

63

26.6%

105

46

75.9%

143

62 131.8%

(49)

(112)

-56.3%

(34)

(17)

(108)

-54.8%

(160)

(198) -18.9%

6.73%

9.04% (231 bps)

4.59%

7.80%

7.08% (35 bps)

8.05%

7.72% 34 bps

-19.19%

-14.74% (445 bps)

-9.56%

-18.57%

-26.06% 688 bps

-16.77%

-32.56%1580 bps

199 bps

19.14%

2.30%

9.61% 533 bps

14.00%

6.86% 713 bps

-11.94% 803 bps

-2.54%

-1.20%

-8.89% 497 bps

-7.36%

-8.15% 79 bps

Construction Equipment
EBIT

Railway Equipments
Construction Equipment
EBIT Margin
Agri Machinery Products
Auto Ancillary Products
Railway Equipments

14.95%

Construction Equipment

-3.92%

12.95%

Trend of Quarterly CE Realisations

2300000
2100000
1900000
1700000
1500000
1300000
1100000
900000
700000
500000

2034248
1839370 1789959 1763670

1626372

25%
20%

800

CE Realisations

Q3FY15
YoY%

533820

533076

534876

520000
Q1FY16

Q4FY15

Tractor Realisations

Q3FY15
YoY%

-20%
-30%
-40%
Q2FY16

Q1FY16
CE Volume

Q4FY15

Q3FY15

YoY%

Q2FY15
QoQ%

Trend of Quarterly Tractor Volumes

530000

Q2FY16

0%
-10%

QoQ%

546024

550000

20%
10%

508

Q2FY15

Trend of Quarterly Tractor Realisations

556035

560000

612

200

-5%
-10%
Q4FY15

747

400

5%
0%

Q1FY16

30%
801

737

600

15%
10%

Q2FY16

540000

Trend of Quarterly CE Volumes

1000

30%

17000

10%
8%
6%
4%
2%
0%
-2%
-4%

15881

16000
15000

15013

14875

14000
13000
12000
11000

11438

11036

10000
Q2FY16

Q2FY15

Q1FY16

Tractor Volumes

QoQ%

Source: SPA Research

Q4FY15

Q3FY15

YoY% (RHS)

Q2FY15
QoQ% (RHS)

40%
30%
20%
10%
0%
-10%
-20%
-30%
-40%

Automobiles (Tractors)

Financials
Income Statement
Year End March (INR mn)
Net Sales
Growth (%)
Cost of goods sold
Employees Cost
Other Expenses
Total Expenditure
EBIDTA (without OI)
% Growth
EBITDA Margin %
Depreciation/Amortization
EBIT
EBIT Margin %
Interest Expense
Other Income
EBT
Tax Expenses
PAT
Minority Interest
Exceptional Inc/ (Exp)
APAT
% Growth
APAT Margin %

Balance Sheet
18M FY14*
65017
7.04%
46584
6937
6947
61113
3904
37.14%
6.01%
860
3,045
4.68%
1,122
829
2,751
282
2,469
2
28
2,439
122.94%
3.75%

FY15
41127
-5.12%
29272
4474
5306
39502
1625
-37.58%
3.95%
(207)
1,831
4.45%
583
(545)
704
(56)
760
(3)
(231)
994
-38.89%
2.42%

FY16E
FY17E
37171
46962
-9.62% 26.34%
25286
31610
4831
5315
4832
5870
35359
43312
1812
3650
11.54% 101.42%
4.88%
7.77%
650
681
1,162
2,969
3.13%
6.32%
514
444
565
603
1,213
3,128
169
832
1,044
2,296
2
2
1,042
2,294
4.84% 120.13%
2.80%
4.88%

Year End March (INR mn)

FY15

FY16E

FY17E

1193

1193

1193

1193

Reserves & Surplus

17463

17114

17642

19293

Total Networth

18655

18307

18835

20485

Sources of funds
Share capital

Minority Interest
Total Debt
Total Liabilities

178

147

149

151

4383

4844

4244

3844

23216

23297

23227

24480

16537

15955

16463

16782

387

557

400

400

Application of funds
Net Block
Capital Work-in-Progress
Investments

3720

3726

3726

3726

Current Assets

14160

14433

13307

16221

Current Liabilities

11650

10710

11256

13384

Net Current Assets

2511

3723

2050

2837

Other Assets

61

(665)

588

735

23216

23297

23227

24480

18M FY14*

FY15

FY16E

FY17E

EBT

2751

704

1213

3128

Less: Other Income/Exceptionals

Total Assets

Key Ratios
Year End March
18M FY14*
Per Share Data (INR) (Annualised)
Reported/ EPS
20.70
Adj. EPS
20.45
Growth (%)
122.94%
CEPS
27.66
DPS
1.85
BVPS
156.41
Return Ratios (%) (Ann.)
RoACE
9.02%
RoANW
9.26%
Liquidity Ratios (Ann.)
Net Debt/Equity
0.14
Interest Coverage Ratio
2.71
Current Ratio
1.22
Efficiency Ratios (Ann.)
Asset Turnover Ratio
2.87
Inventory Days
70
Debtor Days
36
Creditor Days
71
Valuation Ratios (Ann.)
P/E (x)
5.79
P/BV (x)
0.76
P/CEPS (x)
4.28
Dividend Yield (%)
1.55%
EV/Net Sales (x)
0.39
EV/EBIDTA (x)
6.46

18M FY14*

Cash Flow
FY15
6.37
8.33
-38.90%
6.60
1.23
153.46

FY16E

FY17E

Year End March (INR mn)

8.75
19.25
8.74
19.23
4.85% 120.13%
14.18
24.94
2.00
2.50
157.90
171.74

7.93%
5.38%

5.03%
5.61%

12.53%
11.67%

0.13
3.14
1.35

0.10
2.26
1.18

0.07
6.69
1.21

1.77
71
35
75

1.60
65
41
79

1.97
65
38
66

15.67
0.85
19.79
1.03%
0.44
11.02

18.55
1.03
11.42
1.68%
0.57
11.70

8.42
0.94
6.50
2.10%
0.44
5.70

(829)

545

(565)

(603)

Add:Depreciation

860

(207)

650

681

Add: Interest paid

1122

583

514

444

Direct taxes paid

(411)

(136)

(400)

(1032)

Change in Working Capital

(449)

(395)

1534

(814)

Cash Flow from operations (a)

3045

1094

2945

1804

(1011)

(92)

(1000)

(1000)

281

(170)

157

(6)

(720)

(268)

(843)

(1000)

(0)

(1153)

461

(600)

(400)

Dividend paid

(233)

(177)

(516)

(645)

Interest paid

(1122)

(583)

(514)

(444)

Change in Fixed Assets

Change in CWIP
Change in Investments
Cash Flow from Investing (b)
Change in Equity
Debt Raised/(Repaid)

Others

427

291

(612)

658

(2081)

(8)

(2242)

(831)

244

818

(139)

(28)

Opening Cash

1452

1696

2514

2374

Closing Cash

1696

2514

2374

2346

Cash Flow from Financing (c )

Net Change in Cash (a+b+c)

The company has changed its accounting year from September ending to March ending to comply with the provisions of Companies Act 2013. FY14 was 18 month accounting year hence figures
have been annualised whereever necessary.

Automobiles (Tractors)
Sharad Avasthi

Head - Equity Research

sharad.avasthi@spagroupindia.com

Tel.: +91-33-4011 4800

Ext.832

Analyst Certification of Independence: The analyst(s) for this report certifies that all the views expressed in this report accurately reflect his or her personal views about the subject company(ies) or issuers and no part of his or
her compensation was, is or will be, directly or indirectly related to specific recommendations or views expressed in this report. The research analysts are bound by stringent internal regulations and also legal and statutory requirements
of the Securities and Exchange Board of India (hereinafter "SEBI") and the analysts' compensation are completely delinked from all the other companies and/or entities of SPA Securities Limited, and have no bearing whatsoever on
any recommendation that they have given in the Research Report.
Disclaimer and Disclosures as required under SEBI (Research Analyst) Regulations, 2014: SPA Securities Limited (hereinafter refer as SPA Securities) and its affiliates are engaged in investment banking, investment advisory,
stock broking, institutional equities, Mutual Fund Distributor and insurance broking. SPA Securities is a SEBI registered securities broking Company having membership of NSE, BSE & MCX for Equity, Future & Option, Currency
Derivatives segment and Wholesale Debt Market. The Company is focused primarily on providing securities broking services to institutional clients and is empanelled as an approved securities broker with all the major Nationalised,
Private and Co-operative banks, Corporate houses, Insurance Companies, Financial Institutions, Asset Management Companies and Provident Fund Trusts. Details of affiliates are available on our website i.e. www.spasecurities.com.
We hereby declare that our activities were neither suspended nor we have defaulted with any stock exchange authority with whom we are registered in the last five years. We have not been debarred from doing business by any Stock
Exchange/SEBI or any other authorities, nor has our certificate of registration been cancelled by SEBI at any point of time.
General Disclosures: This Research Report (hereinafter called "report") has been prepared by SPA Securities and is meant for sole use by the recipient and not for circulation. This Report does not constitute a personal recommendation
or take into account the particular investment objectives, financial situations, or needs of individual clients. The recommendations, if any, made herein are expression of views and/or opinions and should not be deemed or construed
to be neither advice for the purpose of purchase or sale of any security, (as defined under section 2(h) of securities Contracts (Regulation) Act.1956, through SPA Securities nor any solicitation or offering of any investment /trading opportunity
on behalf of the issuer(s) of the respective security (ies) referred to herein. Recipients of this Report should rely on information/data arising out of their own investigations. Readers are advised to seek independent professional advice
and arrive at an informed trading/investment decision before executing any trades or making any investments.
This Report has been prepared on the basis of publicly available information, internally developed data and other sources believed by SPA Securities to be reliable, although its accuracy and completeness cannot be guaranteed. Such
information has not been independently verified and no guaranty, representation of warranty, express or implied, is made as to its accuracy, completeness or correctness. Any review, retransmission or any other use is prohibited.
The information, opinions, views expressed in this Research Report are those of the research analyst as at the date of this Research Report which are subject to change and do not represent to be an authority on the subject. While
we would endeavour to update the information herein on a reasonable basis, we are under no obligation to update the information. Also, there may be regulatory, compliance or other reasons that prevent us from doing so. Hence all
such information and opinions are subject to change without notice.
Our salespeople, traders, and other professionals may provide oral or written market commentary or trading strategies to our clients that reflect opinions that are contrary to the opinions expressed herein, and our proprietary trading
and investing businesses may make investment decisions that may be inconsistent with the recommendations expressed herein.
This Research Report should be read and relied upon at the sole discretion and risk of the recipient. If you are dissatisfied with the contents of this complimentary Research Report or with the terms of this Disclaimer, your sole and
exclusive remedy is to stop using this Research Report. Neither SPA Securities nor its affiliates or their respective directors, employees, agents or representatives shall be responsible or liable in any manner, directly or indirectly, for
the losses or the damages sustained due to the investments made or any action taken on basis of this report, including but not restricted to, fluctuation in the prices of shares and bonds, changes in the currency rates, diminution in
the NAVs, reduction in the dividend or income, etc.
Compensation of our Research Analysts is not based on any specific merchant banking, investment banking or brokerage service transactions. SPA Securities may have issued other reports in the past that are inconsistent with and
reach different conclusion from the information presented in this report.
SPA Securities, its affiliates and employees may, from time to time, effect or have effected an own account transaction in, or deal as principal or agent in or for the securities mentioned in this document. They may perform or seek to
perform investment banking or other services for, or solicit investment banking or other business from, any company referred to in this report.
The user should consult their own advisors to determine the merits and risks of investment and also read the Risk Disclosure Documents for Capital Markets and Derivative Segments as prescribed by Securities and Exchange Board
of India before investing in the Indian Markets.
A graph of daily closing prices of securities is available at www.nseindia.com and http://economictimes.indiatimes.com/markets/stocks/stock-quotes. (Choose a company from the list on the browser and select the "three years" icon
in the price chart).
SPA Securities plans to register itself as a Research Entity under the SEBI (Research Analysts) Regulations, 2014.
Disclaimers in respect of jurisdiction: This report is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident or located in any locality, state, country or other jurisdiction where such
distribution, publication, reproduction, availability or use would be contrary to law or regulation or what would subject SPA Securities or its affiliates to any registration or licensing requirement within such jurisdiction. If this report is
inadvertently send or has reached any individual in such country, especially, USA, the same may be ignored and brought to the attention of the sender. This document may not be reproduced, distributed or published for any purposes
without prior written approval of SPA Securities.
List of Associates as per SEBI (Research Analyst) Regulations, 2014
SPA Insurance Broking Services limited
Statements on ownership and material conflicts of interest, compensation - SPA and Associates
Disclosure of interest statement
SPA Securities/its Affiliates/Analyst/his or her Relative financial interest in the company
SPA Securities/its Affiliates/Analyst/his or her Relative actual/beneficial ownership of more than 1% in subject company at the end of the month
Immediately preceding the date of the publication of the research report or date of public appearance.
Investment banking relationship with the company covered
Any other material conflict of interest at the time of publishing the research report
Receipt of compensation by SPA Securities or its Affiliated Companies from the subject company covered for in the last twelve months:
Managing/co-managing public offering of securities
Investment banking/merchant banking/brokerage services
products or services other than those above
in connection with research report
Whether Research Analyst has served as an officer, director or employee of the subject company covered
Whether the Research Analyst or Research Entity has been engaged in market making activity of the Subject Company;

Yes/No
No
No
No
No

No
No
No

For statements on ownership and material conflicts of interest, compensation, etc. for individual Research Analyst(s), please refer to each specific research report.

SPA Securities Ltd: Mittal Court, A-Wing, 10th Floor, Nariman Point, Mumbai - 400 021, Tel. No. : +91-022-4289 5600, Fax: +91 (22) 2657 3708/9
For More Information Visit Us At : www.spasecurities.com

SPA CAPITAL SERVICES LIMITED

Investment Advisory Services,
AMFI Reg. No. ARN-0007

SPA COMTRADE PRIVATE LIMITED

Member of NCDEX & MCX.
NCDEX TMID-00729,
NCDEX FMC No.NCDEX/TCM/CORP/0714

SPA CAPITAL ADVISORS LIMITED

SEBI registered Category-1
Merchant Bankers
SEBI Regn. No. INM000010825

SPA INSURANCE BROKING SERVICES LTD

Direct Broker for Life and General
Insurance Broking
IRDA Lic. Code No. DB053/03

SPA Securities Ltd

NSE Cash
NSE Future & Option
NSE Currency Derivatives
BSE Cash
BSE Currency Derivatives
MCX-SX Cash
MCX-SX Future & Option
MCX-SX Currency Derivatives
Mutual Fund
CDSL DP
NSDL DP

SEBI Reg. Nos.

INB231178238
INF231173238
INE231178238
INB011178234
INE011178234
INB261178231
INF261178231
INE261178238
ARN 77388
IN-DP-CDSL-485-2008
IN-DP-NSDL-316-2009