Riding High on Segmental Growth

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Riding High on Segmental Growth
Riding High on Segmental Growth
Himali Patel - 09 May 2019



CMP: 572.65  x PE: 17.24 *As on Oct 23rd, 2018


Riding High On Segmental Growth

Company Is Well Positioned With New Products


One of India’s largest domestic tractor manufacturers Escorts had put up an impressive show for the first quarter of June, by posting a net profit growth of 93 per cent year-on-year (Y-o-Y). The growth was backed by robust segmental revenue across its three business segments. The company’s agri machinery (AM) segment grew by 25 per cent, construction equipment (CE) segment by 49.5 per cent and railway equipment division (RED) saw a rise of 35 per cent against last year.

Escorts, which is mainly into manufacturing of equipment for agriculture, infrastructure and railway for domestic as well as international markets, has currently a 850 plus active dealer network under its EAM segment. In September the company launched its first-ever driverless automated tractor also called as smart tractor. Further the farmers who cannot afford to invest in farming related assets the company has launch rental app called TRAXI were owners of farm machinery can rent their equipment  to small and marginal farmers. Besides, its debt-equity ratio has come down to two per cent in Financial Year (FY) 2018 from 13 per cent in FY 2017.


Financial Scorecard

The company’s net cash flow on the balance sheet as on June 30, 2018, was close to `720 crore, which aided the company to expand its capacity on the machining side in the current fiscal year. As per the management, the company has already earmarked a separate capex of around `300 crore which will, by the end of 2020, take the capacity to about 150,000 units on the machining side. Escort reported strong earnings before interest, tax, depreciation and amortisation (EBITDA) growth by 90.2 per cent Y-o-Y at `185.5 crore, led by new products and network expansions. Chola securities in its research report pointed out that they are positive on the long-term growth prospects of the company led by strong demand in agriculture and railway businesses. “The company’s EBIT margin (is expected) to expand by 100 Basis Points (bps) in FY2019, led by expansion of 90-100 bps in AM, 200-300 bps in CE and 300-400 bps in RED on the back of better product mix,” said an analyst at Chola securities.

Brokerages like Chola securities have given a “BUY” and ‘continues to be bullish’ call on the prospects of the company’s script.






CMP: 190.95  x PE: 11.85 *As on Oct 23rd, 2018


CAPEX To Aid Growth For FY19

Strong Capitalisation Bodes Well For Investors


What makes one of the largest transmission utilities in the world, i.e. Power Grid Corporation of India (POWERGRID), favourite amongst analysts is its ability to become a profit making company since its inception. The company’s net sales clocked  18 per compound annual growth rate (CAGR), over FY 14 -18 while net profit grew by 15 per cent CAGR over the same period. 

The company which is categorised as a Navratna Enterprise is in various facets of power business such as  power transmission, distribution and telecom sectors. It also offers consultancy services.


Financial Scorecard

For the quarter that ended in June this year, the company’s sales were up by 14 per cent at Rs8,428 crore driven by a strong revenue growth in the telecom and transmission businesses, which were around 23 per cent and 14 per cent respectively. The company’s management has guided capex of Rs25,000 crore for the next three years. Meanwhile, the capex for Quarter1 (Q1) FY2019 stood at Rs6,421 crore and asset capitalisation for the same quarter was at Rs2,521 crore.

“POWERGRID is on track to achieve huge capex plan till FY2022. We believe that the pace of capitalisation is set to pick-up in the coming quarters with some larger projects getting operational,” said an analyst at Reliance securities.  Considering healthy outlook in terms of capex and huge pipeline of work in hand, broking firm Prabhudas Lilladher believes that the stocks will deliver sales and PAT CAGR of 10 per cent and 17 per cent, respectively, over FY2018-2020 estimates.

On the flipside, brokerages such as Axis capital and Prabhudas Lilladher also caution investors about Central Electricity Regulatory Commission (CERC) tariff policy for 2019-22 which might be a risk for the company. “While a review of CERC tariff post 2019 might be a near-term drag, strong project execution capabilities, history of meeting targets and high capital work-in-progress give comfort on earning visibility which could lead to strong cash flow and increased dividend payout,” pointed out Prabhudas Lilladher’s analyst. 

During its Q1 FY2019, the company received seven new orders for its consultancy business. Backed by the healthy orderbook in the coming years along with decent return on equity, Reliance securities believes that its fundamentals would continue to remain strong and has given a ‘BUY’ remark.



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