November 3, 2015 Escorts (ESCORT) Target : Target Period ...content.icicidirect.com/mailimages/IDirect_Escorts_Q2FY16.pdf · margin expansion YoY. Margins (EBIT) of the agri machinery

November 3, 2015

ICICI Securities Ltd | Retail Equity Research

Result Update

Weak quarter; subdued outlook for FY16! • Escorts’ Q2FY16 results were below our estimates. Revenues

declined 19.2% YoY to | 801.7 crore, above our expectation of | 779 crore mainly on account of higher than estimated construction revenues of | 125 crore vs. our expectation of | 97 crore. The beat on construction revenues was mainly on account of higher realisations from higher contributing models

• The agri (tractors) business reported revenues of | 610 crore higher than our expectation of | 599 crore, mainly due to higher than estimated ASPs. Tractor volumes declined 22.9% YoY to 11438 units

• EBITDA declined 11.9% YoY to | 29.5 crore. EBITDA margins came in at 3.7% (up 31 bps YoY, down 220 bps YoY), below our expectations of 4.8% mainly due to lower than estimated gross margin expansion YoY. Margins (EBIT) of the agri machinery (tractors) segment contracted 34 bps YoY and 231 bps QoQ to 6.7%

• The railway equipment segment continues to perform well, with revenue growing 13.1% YoY to | 53.5 crore while EBIT margins were at 14.9% vs. 9.5% YoY. The improvement in margins was due to a favourable product mix and a reduction in fixed cost

• Consequently, PAT came in at | 16.2 crore vs. loss of | 7.9 crore in Q2FY15

Volumes continue to stutter After a year of strong 20.2% growth in FY14, domestic tractor sales fell 13% YoY in FY15. After remaining flat in H1FY15, tractor sales skidded 22% YoY in Q3FY15 (weak Kharif output) and 30% YoY in Q4FY15 (delayed Rabi sowing). H1FY16 industry volumes declined 20% YoY due to deficient monsoon, worsening water reservoirs & lower disposable income in rural area. Escorts’ volumes followed the industry trend declining 21.6% YoY in H2FY15, 19.5% in H1FY16. The industry downtrend is likely to continue in H2FY16, with the overall industry likely to decline 8-10% in FY16E. Although the long term fundamentals of the industry remain strong on account of a declining replacement cycle & under-penetrated domestic market, we do not expect Escorts to grow at the same pace as peers like M&M, TAFE, etc, mainly due to lack of complete geographic positioning (lower presence in South/West India that is expected to be the fastest growing region for tractor industry) and a sharp decline in market share in largest sub-segment of 41-50 HP. Operating leverage benefits to push margins EBIT margins of the agri business are expected to touch double digit figures of 11% in FY17E owing to a decline in raw material prices and increase in capacity utilisation levels. The railway equipment segment generated healthy EBIT margins of 14% in H1FY16. With an industrial recovery expected to happen from FY17E, we may see other businesses performing positively, aiding overall profit growth. Significant market share gain required for re-rating We believe the winners of the overall auto space are companies with superior delivery of earnings as investors seek comfort in auto companies on the earnings front. Thus, we feel Escorts needs to deliver a consistent improvement in earnings before warranting a multiple upgrade. Thus, we value the stock at 6x FY17E DEPS to arrive at a target price of | 152. We have a HOLD recommendation on the stock.

Escorts (ESCORT) | 166 Rating matrix

Rating : HoldTarget : | 152

Target Period : 12 monthsPotential Upside : -9%

What’s changed?

Target Changed from | 150 to | 152EPS FY15E Changed from | 17.5 to | 10.6EPS FY16E Changed from | 25.6 to | 26Rating Unchanged

Quarterly performance (| crore) Q2FY16 Q2FY15 YoY (%) Q1FY16 QoQ (%)Revenues 801.7 992.6 -19.2 977.7 -18.0EBITDA 29.5 33.5 -11.9 57.5 -48.7EBITDA (%) 3.7 3.4 31 bps 5.9 -220 bpsReported PAT 16.2 -7.9 -305.8 36.3 -55.4

Key financials

| Crore FY14 FY15E FY16E FY17ENet Sales 6,268 3,962 3,729 4,364 EBITDA 381.3 161.4 197.3 423.7 Net Profit 244.8 79.7 126.8 309.8 FDEPS (|) 20.5 6.7 10.6 26.0

*FY14E numbers are for 18 months (Oct’12 to Mar’14) Valuation summary

FY14 FY15E FY16E FY17EP/E 8.1 24.9 15.6 6.4 Target P/E 7.4 22.7 14.3 5.8 EV / EBITDA 5.7 13.3 10.3 4.1 P/BV 1.1 1.1 1.0 0.9 RoNW 13.4 4.4 6.3 13.6 RoCE 13.7 4.5 5.7 14.0

*FY14E numbers are for 18 months (Oct’12 to Mar’14) Stock data Particular AmountMarket Capitalization (| Crore) 1,979.9Total Debt (FY14) (| Crore) 350.4Cash & Investments (FY14) (| Crore) 164.1EV (| Crore) 2,166.152 week H/L (|) 188/101Equity capital (| crore) 119.3Face value (|) | 10

Price performance

1M 3M 6M 12MEscorts Ltd 12.0 22.2 39.7 1.9M&M Ltd -3.3 -11.3 5.6 -7.5

Research Analyst

Nishit Zota

[email protected]

Vidrum Mehta

[email protected]

ICICI Securities Ltd | Retail Equity Research Page 2

Variance analysis Q2FY16 Q2FY16E Q2FY15 YoY (%) Q1FY16 QoQ (%) Comments

Total Operating Income 801.7 779.0 992.6 -19.2 977.7 -18.0 Came above estimates due to higher than estimated construction revenuesRaw Material Expenses 584.4 484.1 741.6 -21.2 582.4 0.4(Inc)/Dec in Stock in Trade and WIP -94.1 -2.0 -83.9 12.1 32.9 -385.5Purchase of Traded Goods 54.9 46.5 48.3 13.5 59.7 -8.2Employee Expenses 106.0 93.0 109.9 -3.5 108.3 -2.1Other Expenditure (Quarterly) 120.9 120.2 143.3 -15.6 136.8 -11.6EBITDA 29.5 37.2 33.5 -11.9 57.5 -48.7EBITDA Margin (%) 3.7 4.8 3.4 31 bps 5.9 -220 bps Below estimates on account of lower than estimated gross margin expansion. EBIT

margins in tractor business contracted 34 bps YoY/231 QoQ to 6.7%Interest 11.1 14.3 14.1 -20.7 13.7 -18.9Depreciation 15.5 11.9 13.5 14.7 16.1 -4.1Total Tax 0.6 4.3 -7.2 -108.2 2.1 -71.4 Lower than estimate on account of weighted deduction on R&D spendPAT 16.2 17.3 -7.9 -305.8 36.3 -55.4 PAT declined due to decline in revenues & margin contractionKey MetricsTractor ASP (|) 533076 523759 541069 -1.5 545583 -2.3Construction Equipment revenue (| crore)

124 97 121 2.5 93 33.2 Construction revenues were higher-than-expected on account of higher-than-expected realisations owing to higher contributing models

Auto Ancillary revenue (| crore) 24 29 27 -9.6 29 -16.3 Auto ancilliary revenues declined due to lower export contributionRailway Equipment revenue (| crore) 54 54 47 13.1 49 9.8

Source: Company, ICICIdirect.com Research Change in estimates

(| Crore) Old New % Change Old New % Change CommentsRevenue 4,134 3,729 -9.8 4,699 4,364 -7.1 Reduced estimates on the back of H1FY16 trend & the outlook for rest of the yearEBITDA 310 197 -36.3 423 424 0.2EBITDA Margin (%) 7.5 5.3 -221 bps 9.0 9.7 71 bps FY17 margin estimates have been increased across segments. Margins in the tractor

segment is expected to reach double digit once the volumes touch FY14 levels. Rail business margins will increase due to operating leverage benefit,

PAT 209 127 -39.3 306 310 1.3EPS (|) 17.5 10.6 -39.3 25.6 26.0 1.5

FY16E FY17E

Source: Company, ICICIdirect.com Research Assumptions

Current Earlier CommentsFY14 FY15E FY16E FY17E FY16E FY17E

Tractor volumes (nos) 100,815 59,779 54,588 63,088 61,321 69,901 The management has guided that the tractor volumes will decline in Q3 & hence based on YTD trends we reduce our volume estimates

Average ASP (|) 508,188 537,115 538,511 545,130 538,054 550,352RMC/Sales 70.8 70.4 67.4 65.6 70.1 68.8ECEL revenues 763 516 511 600 587 640 Escort served industry has witnessed decline in H1FY16 & is expected to recover at a slower

pace. EBIT margins (%)Tractor 9.7 7.1 7.9 11.0 8.3 9.8 Margins in the tractor segment is expected to reach double digit once the volumes touch FY14

levelsECEL -4.2 -4.8 -2.2 5.3 2.7 7.4 We expect the construction business to breakeven in Q4FY16

Source: Company, ICICIdirect.com Research *FY14E numbers are for 18 months (Oct’12 to Mar’14)


Company Analysis Revenues to recover post decline in FY16E

In India, Escorts is the fourth largest tractor manufacturer with a market share of 10.4% (FY15). The tractor segment is dominated by M&M and TAFE, which have 40.3% and 24.4% share, respectively. Of late, competition pressure has intensified in the segment with “international tractor” having overtaken Escorts’ third position with market share of ~12% in FY15. With a weak demand environment in addition to peer pressure, we expect revenues to grow to ~| 4714 crore in FY17E (~5% CAGR in FY15-17E). Exhibit 1: Growth in revenues

3,89

4

6,29

2

3,98

6

3,74

5

4,37

9

40.8

61.6

(36.6)

(6.0)

16.9

0

1000

2000

3000

4000

5000

6000

7000

SY12 FY14 FY15E FY16E FY17E

(| c

rore

)

(60)

(40)

(20)

-

20

40

60

80

(%)

Total Operating income Growth (%)


Tractor continues to be the main segment for Escorts accounting for ~80% of revenue. Other segments like construction equipment are expected to show signs of a recovery from H2FY16 onwards. Despite this, the industry served by Escorts declined 4% YoY with the pick & carry and backhoe loaders down 10% and 7% YoY, respectively. Going ahead, we expect some revival in the segment registering decent volumes. Exhibit 2: Segmental split in ESC revenues

2,91

2

5,12

3

3,21

1

2,94

0

3,43

9

749

763

516 511600143

211

104 103108149

256

184 211243

-

1,000

2,000

3,000

4,000

5,000

6,000

7,000


(| c

rore

)

Tractors Construction Equipment Auto Ancillary Railway Equipment



Exhibit 3: Domestic tractor industry volumes growth trends 30

4622

4025

86

4822

86

5368

91

5277

68

6304

84

5514

43

32.2

11.3

-1.7

19.5

-12.5

19.8

0

200000

400000

600000

800000

FY09 FY10 FY11 FY12 FY13 FY14 FY15

-20

-10

0

10

20

30

40

Total Volumes Growth (%)

Source: Company, Crisil Research ICICIdirect.com Research

Exhibit 4: Segmental share in domestic tractor industry

17 17 15 15 10 11 11

50 48 44 4644 35 37

23 23 28 27 38 49 46

10 11 12 13 8 4 6

0102030405060708090

100

FY09 FY10 FY11 FY12 FY13 FY14 FY15Up to 30 HP 31-40 HP 41-50 HP 51 HP and above

Source: Company, Crisil Research ICICIdirect.com,

Escort’s share in the tractor segment has remained subdued as market leaders M&M and TAFE have aggressively grown across geographies and segments. Three years ago, Escorts entered the >50 HP category, which has been well received, reflecting in market share, which is at 9.7% in FY15 in the category. Escorts’ market share in the 31-40 HP segment appears higher in FY13-14 due to reclassification of certain tractors from 30 HP to 31 HP (thus a steep decline in the <30 HP segment).

Exhibit 5: Trend in < 30 HP tractor segment - domestic

5121

4

6847

7

7172

1

8222

4

5984

6

7081

1

5450

6

14.5

12.6 12.5

10.5

3.4

0.8 1.00

20000

40000

60000

80000

100000


(uni

ts)

0

2

4

6

8

10

12

14

16

(%)

Industry Escorts Share

Source: Company, Crisil Research,ICICIdirect.com Research, *change in classification post FY13

Exhibit 6: Trend in 31-40 HP tractor segment - domestic 15

2941

1944

88

2143

48

2444

31

202,

497

2333

97

2233

02

8.49.4 9.3

7.6

11.5

14.314.3

0

50000

100000

150000

200000

250000

300000


(uni

ts)

0

2

4

6

8

10

12

14

16

(%)


Source: Company, ICICIdirect.com Research Crisil Research,*change in classification post FY13

Exhibit 7: Trend in 41-50 HP tractor segment - domestic

7141

4

9418

3

1371

80

1431

02

256,

270

3088

10

1991

30

29.1 28.025.2

23.6

15.6

10.9

9.7

0

50000

100000

150000

200000

250000

300000

350000


(uni

ts)

0

5

10

15

20

25

30

35

(%)


Source: Company, ICICIdirect.com Research Crisil Research,

Exhibit 8: Trend in >50 HP tractor segment - domestic

2905

3 4543

8

5903

7

6713

4

32,8

30

4073

5

2756

1

0.0 0.0 0.0 0.0

4.0

6.4

9.7

0

20000

40000

60000

80000


(uni

ts)

-2

0

2

4

6

8

10

12

(%)


Source: Company, ICICIdirect.com Research Crisil Research,


EBITDA margins to improve from current lows as utilisation levels improve Historically, Escort’s margins have been under pressure despite peers like M&M witnessing strong double digit margins. However, the management has guided that higher utilisation level, new product launches and better product mix are likely to improve tractor margins to 10-12% in the next couple of years, which is further likely to touch ~15% over a longer period. There have been some green shoots in the railway equipment segment, which, according to the management, is sustainable, going forward also. Thus, we build in 5.3%, 9.7% overall margins for FY16E, FY17E, respectively. Exhibit 9: Margins, costs annual trends and forecasts

182.

2

381.

3

161.

4

197.

3

423.

74.7

6.1

4.0

5.3

9.7

0

50

100

150

200

250

300

350

400

450


(| c

rore

-

2

4

6

8

10

12

(%)

EBITDA EBITDA Margins (%)


Exhibit 10: EBITDA margins - Quarterly trend

70.9

67.9

71.5 71.2 71.5

70.4 70.5

68.7 68.3

66.8

6.1

4.75.0

7.96.8

3.4

4.7

2.7

5.9

3.7

65

67

69

71

73

75

Q3FY

14

Q4FY

14

Q5FY

14

Q6FY

14

Q1FY

15

Q2FY

15

Q3FY

15

Q4FY

15

Q1FY

16

Q2FY

16

(%)

-

1

2

3

4

5

6

7

8

(%)

Raw materials EBITDA margins

Source: Company, ICICIdirect.com Research


Exhibit 11: Tractor ASPs on uptrend

480,

203 508,

188 537,

115

538,

511

545,

1303.3

5.8 5.7

0.3

1.2

440,000

460,000

480,000

500,000

520,000

540,000

560,000

SY12 FY14 FY15E FY16E FY17E(|

cro

re)

(1)

-

1

2

3

4

5

6

7

(%)

Tractor ASPs Growth (%)


Expect improvement in profitability as topline, margins grow We expect an improvement in volumes and margins to impact profitability positively. In SY09 and SY10, Escorts’ profit margins were in the range of 4-5%. However, the same has declined over the years with average PAT margins at < 3% over SY11 to FY15. An improvement in demand would result in higher utilisation, further improving the overall performance of the company. Thus, we build in profits will grow to ~| 310 crore. Exhibit 12: Increase in profitability continues as higher tractor utilisation scales up margins

70

245

80 127

310

(49.4)

251.7

(67.5)

59.1

144.4

0

50

100

150

200

250

300

350


(| c

rore

)

(100)

(50)

-

50

100

150

200

250

300

(%)

PAT Growth (%)



High cost of interest despite low D/E profile In the last six years, Escorts has had an average cost of debt at > 15%, which considering the low D/E (average D/E over the period is 0.2) is quite high. Since the majority of the capex is already done, we expect debt to reduce over the next two years further resulting into lower interest costs. However, this remains an area of concern for us. Exhibit 13: Significantly high cost of interest a worry

459.

9

350.

4

408.

4

358.

4

283.

4

21.0

31.6

14.0 14.9 15.5

0

100

200

300

400

500


(| c

rore

)

0

5

10

15

20

25

30

35

(%)

Debt Interest (%)


Return ratios inch towards double-digit mark! Escorts’ return ratios have historically been very low and have reflected the poor operating performance of the company. Also, capital allocation has been an issue as capital has been blocked in unprofitable/low margin businesses. For FY14, return ratios appear inflated as FY14 consists of six quarters due to a change in accounting year. Going forward, we expect return ratios to improve to double digit levels in FY17E. Exhibit 14: Return ratios to improve as asset turn improves on better utilisation

6.5

4.3

13.7

4.5

5.7

14.0

13.4

4.4

6.3

13.6

0

4

8

12

16


(%)

ROCE ROE



Outlook & valuation We believe winners in the overall auto space are companies with superior delivery of earnings as investors seek comfort in auto companies on the earnings front. The increasing focus is on capital allocation vs. return on capital allocated by companies. Thus, we feel both tractor industry wise as well as on a stock specific basis, Escorts needs to deliver a consistent improvement in earnings before warranting a multiple upgrade. Thus, we value the stock at 6x FY17E DEPS arrive at a target price of | 152 with a HOLD recommendation on the stock. Exhibit 15: Valuations

Sales Growth EPS Growth PE EV/EBITDA RoNW RoCE (| cr) (%) (|) (%) (x) (x) (%) (%)

FY14 6,267.6 95.2 20.5 74.9 8.1 5.7 13.4 13.7 FY15E 3962.3 -36.8 6.7 -67.5 24.9 13.3 4.4 4.5FY16E 3,729.1 (5.9) 10.6 59.1 15.6 10.3 6.3 5.7 FY17E 4364.2 17.0 26.0 144.4 6.4 4.1 13.6 14.0



Company snapshot

Target Price: 152

0

20

40

60

80

100

120

140

160

180

200

Dec-

10

Mar

-11

Jun-

11

Sep-

11

Dec-

11

Mar

-12

Jun-

12

Sep-

12

Dec-

12

Mar

-13

Jun-

13

Sep-

13

Dec-

13

Mar

-14

Jun-

14

Sep-

14

Dec-

14

Mar

-15

Jun-

15

Sep-

15

Dec-

15

(|)

Source: Bloomberg, Company, ICICIdirect.com Research

Key events Date EventJan-08 Escorts discloses weak quarterly financials on PAT; company turns into a loss for Q1SY08 on weak operating performanceDec-08 Escorts continues weak bottomline performance even though EBITDA margins improve to ~8% levels on account of one-off costs of ~| 18 croreFeb-09 Escorts ties up with Bank of Rajasthan for tractor and dealer financingNov-09 Escorts reports strong EBITDA margins at 12.6% on account of sales growth of ~12% on YoY basis; however profits inflated via tax write-backsJan-10 Escorts management targets cost cutting initiatives to improve margins Mar-10 Escorts business performance improves, profit levels improve owing to positive tractor cycle prior to onset of monsoon,lower costs Nov-10 Escorts reports annual SY10 results witnesses unexpected rise in other expenses to 18% of net sales led by management payoutsJan-11 Escorts barely breaks even after weak operating performance results in Q3SY11Oct-11 Escorts reports results with ~61% rise in debt levels along with weak operating performance for SY11Feb-12 Escorts announces merger of three group companies, of which Escorts' construction business is mainApr-12 Promoters hike stake by ~4% in Escorts amid speculation of a takeover battle brewingMay-13 Management says Escorts to launch heavy duty tractors in 2015 along with improved results in Q2SY13Aug-13 Escorts witnesses buying interest from "Dalal Street bull" Rakesh Jhunjhunwala. Purchases 5% stake in the companyOct-13 Escorts reports improved financial performance with profit of | 168 crore for four trailing quarters. Company also extends financial year to MarchJan-15 Escorts launches new category of tractors named Anti Lift Tractors "ALT 4000" & "ALT 3500" Feb-15 Company announces partnership with DLL ( De Lage Landen Financial services) to launch Escorts Credit which would provide retail tractor loansApr-15 Rakesh Jhunjhunwala increases stake to 8.14% in Q4FY15; stock closes 8% higherApr-15 Escorts enters into JV with Amul group for manufacturing specialised tractors named "Steeltrac", highly succesful speciality tractors


Top 10 Shareholders Shareholding Pattern Rank Name Latest Filing Date % O/S Position (m) Change (m)1 Dave (Surendra Ambalal) 30-Jun-15 30.43 37.3 0.002 Harparshad & Company Pvt. Ltd. 30-Jun-15 8.59 10.5 1.243 Jhunjhunwala (Rakesh) 30-Jun-15 8.14 10.0 0.004 Gupta (Pradeep Kumar) 30-Jun-15 2.69 3.3 0.005 Goldman Sachs Asset Management (India) Private Ltd. 30-Jun-15 2.4 2.9 0.306 Goldman Sachs Asset Management International 31-Jul-15 2.4 2.9 0.007 Dimensional Fund Advisors, L.P. 31-Aug-15 2 2.5 0.008 Canara Robeco Asset Management Company Ltd. 30-Sep-15 1.5 1.8 1.849 Big Apple Clothing Pvt. Ltd. 30-Jun-15 1.45 1.8 0.0010 AAA Portfolio Pvt. Ltd. 30-Jun-15 1.38 1.7 0.00

(in %) Sep-14 Dec-14 Mar-15 Jun-15 Sep-15Promoter 42.0 42.0 42.0 43.0 43.0FII 6.7 8.3 9.3 7.6 8.3DII 3.9 4.3 3.8 1.6 3.4Others 47.5 45.4 44.9 47.8 45.3

Source: Reuters, ICICIdirect.com Research

Recent Activity

Investor name Value Shares Investor name Value SharesCanara Robeco Asset Management Company Ltd. 4.30m 1.84m DSP BlackRock Investment Managers Pvt. Ltd. -5.18m -2.74m Harparshad & Company Pvt. Ltd. 2.86m 1.24m Tata Asset Management Limited -1.02m -0.50m Lloyd George Investment Management (Hong Kong) Ltd. 2.33m 1.09m Mellon Capital Management Corporation -0.83m -0.35m Principal PNB Asset Management Company Ltd. 1.58m 0.68m APG Asset Management -0.63m -0.31m Goldman Sachs Asset Management (India) Private Ltd. 0.56m 0.30m Axis Asset Management Company Limited -0.41m -0.20m

Buys Sells

Source: Reuters, ICICIdirect.com Research


.

Financial summary Profit and loss statement | Crore (Year-end March) FY14 FY15E FY16E FY17ETotal operating Income 6,291.5 3,985.8 3,745.1 4,379.4Growth (%) 61.6 -36.6 -6.0 16.9Raw Material Expenses 1,862.7 2,315.4 2,844.5 3,042.8Employee Expenses 667.4 431.8 439.1 475.4Other expenses 381.5 443.4 538.4 561.7Total Operating Expenditure 5,910.3 3,824.4 3,547.8 3,955.6EBITDA 381.3 161.4 197.3 423.7Growth (%) 333.5 -57.7 22.3 114.7Depreciation 83.2 61.1 62.1 64.4Interest 110.6 57.1 53.6 43.9Other Income 81.5 60.6 67.8 71.9PBT 272.3 73.2 148.0 387.3Total Tax 27.5 -6.5 21.2 77.5PAT 244.8 79.7 126.8 309.8Growth (%) 251.7 -67.5 59.1 144.4EPS (|) 20.5 6.7 10.6 26.0


Cash flow statement | Crore (Year-end March) FY14 FY15E FY16E FY17EProfit after Tax 244.8 79.7 126.8 309.8Add: Depreciation 83.2 61.1 62.1 64.4(Inc)/dec in Current Assets -5.6 87.1 86.4 -242.9Inc/(dec) in CL and Provisions -36.6 -128.9 -44.3 227.4CF from operating activities 285.8 99.0 231.0 358.8(Inc)/dec in Investments 0.2 0.0 -10.0 0.0(Inc)/dec in Fixed Assets -110.5 -19.5 -107.0 -107.0Others 0.0 0.0 0.0 0.0(Inc)/dec in Deferred Tax Asset -10.2 -40.4 0.0 0.0CF from investing activities -118.8 29.4 -200.8 -42.6Issue/(Buy back) of Equity 11.6 0.0 17.0 0.0Inc/(dec) in loan funds -109.5 58.0 -50.0 -75.0Dividend paid & dividend tax -25.8 -16.7 -27.9 -30.7Inc/(dec) in Sec. premium 0.0 0.0 0.0 0.0Others -13.2 -98.0 91.7 0.0CF from financing activities -136.9 -56.7 30.8 -105.7Net Cash flow 30.1 71.7 61.0 210.4Opening Cash 130.6 160.7 232.4 293.4Closing Cash 160.7 232.4 293.4 503.8


Balance sheet | Crore (Year-end March) FY14 FY15E FY16E FY17ELiabilitiesEquity Capital 119.3 119.3 119.3 119.3Reserve and Surplus 1,712.1 1,677.0 1,884.6 2,163.7ESOP 0.0 0.0 0.0 0.0Total Shareholders funds 1,831.4 1,796.3 2,003.9 2,283.0Total Debt 350.4 408.4 358.4 283.4Other non-current Liabilities 29.6 34.5 34.5 34.5Long-term Provisions 118.2 113.6 113.6 113.6Total Liabilities 2,329.6 2,352.8 2,510.4 2,714.5AssetsGross Block 2,380.6 2,370.9 2,470.9 2,570.9Less: Acc Depreciation 757.0 811.1 866.2 923.6Net Block 1,623.6 1,559.8 1,604.7 1,647.3Capital WIP 30.0 30.0 30.0 30.0Total Fixed Assets 1,653.5 1,589.7 1,634.6 1,677.2Net Intangible Asset 26.6 48.8 48.8 48.8Investments 381.5 383.4 393.4 393.4Inventory 551.0 415.9 483.2 569.0Debtors 352.4 397.1 306.5 358.7Loans and Advances 249.9 253.3 190.5 293.9Other Current Assets 3.6 3.5 3.2 4.7Cash 160.7 232.4 293.4 503.8Total Current Assets 1,317.6 1,302.2 1,276.7 1,730.1Creditors 829.7 700.6 715.2 837.0Provisions & Other Curr.Liab 333.4 333.6 274.8 380.4Total Current Liabilities 1,163.1 1,034.2 989.9 1,217.3Net Current Assets 154.5 268.0 286.8 512.7Deferred Tax Asset 7.4 47.8 47.8 47.8Other non-current assets 106.1 15.1 99.0 34.6Application of Funds 2,329.6 2,352.8 2,510.4 2,714.5


Key ratios (Year-end March) FY14 FY15E FY16E FY17EPer share data (|)EPS 20.5 6.7 10.6 26.0Cash EPS 27.5 11.8 15.8 31.4BV 153.6 150.6 168.0 191.4DPS 1.8 1.2 2.0 2.2Cash Per Share 13.5 19.5 24.6 42.2Operating RatiosEBITDA Margin (%) 6.1 4.1 5.3 9.7PBT / Net sales (%) 4.3 1.8 4.0 8.9PAT Margin (%) 5.0 3.7 1.8 3.9Inventory days 30.5 44.5 44.0 44.0Debtor days 20.5 36.6 30.0 30.0Creditor days 48.3 64.5 70.0 70.0Return Ratios (%)RoE 13.4 4.4 6.3 13.6RoCE 13.7 4.5 5.7 14.0RoIC 14.0 4.8 6.2 16.6Valuation Ratios (x)P/E 8.1 24.9 15.6 6.4EV / EBITDA 5.7 13.3 10.3 4.1EV / Net Sales 0.3 0.5 0.5 0.4Market Cap / Sales 0.3 0.5 0.5 0.5Price to Book Value 1.1 1.1 1.0 0.9Solvency RatiosDebt/EBITDA 0.9 2.5 1.8 0.7Debt / Equity 0.2 0.2 0.2 0.1Current Ratio 1.1 1.3 1.3 1.4Quick Ratio 1.0 1.0 1.0 1.0



ICICIdirect.com coverage universe (Auto & Auto Ancillary) CMP M Cap(|) TP(|) Rating (| Cr) FY15E FY16E FY17E FY15E FY16E FY17E FY15E FY16E FY17E FY15E FY16E FY17E FY15E FY16E FY17E

Amara Raja (AMARAJ) 876 1000 Buy 14960 24.1 29.8 39.5 36.4 29.4 22.2 21.6 18.1 13.7 34.3 32.2 34.0 25.6 24.1 25.4Apollo Tyre (APOTYR) 165 200 Buy 8305 19.0 20.6 20.5 8.7 8.0 8.0 4.5 4.7 4.9 26.0 23.1 18.9 18.9 17.9 15.5Ashok Leyland (ASHLEY) 90 90 Hold 25510 1.2 3.2 5.1 76.7 27.9 17.7 27.2 13.9 10.4 7.2 17.2 23.5 6.5 16.1 21.5Bajaj Auto (BAAUTO) 2425 2910 Buy 70159 97.2 129.9 165.3 24.9 18.7 14.7 16.0 12.7 10.1 35.6 38.4 41.1 26.3 31.1 33.8Balkrishna Ind. (BALIND) 667 720 Hold 6448 50.6 55.7 58.5 13.5 12.3 11.7 8.2 7.7 6.6 17.8 17.7 19.0 21.3 17.8 17.7Bharat Forge (BHAFOR) 856 970 Buy 19940 32.8 40.1 46.9 26.1 21.3 18.3 14.8 12.6 10.9 18.6 22.3 25.1 22.2 24.2 23.7Bosch (MICO) 20678 25000 Hold 64929 426.0 478.2 610.3 58.5 52.2 40.9 38.5 35.4 27.9 18.2 17.6 19.1 19.4 19.4 21.3Eicher Motors (EICMOT) 18000 20545 Hold 48618 227.1 562.1 708.1 79.3 32.0 25.4 49.1 21.9 17.1 24.5 43.7 41.2 24.5 41.7 37.7Escorts (ESCORT) 166 152 Hold 1979 6.7 10.6 26.0 24.9 15.6 6.4 13.3 10.3 4.1 4.5 5.7 14.0 4.4 6.3 13.6Exide Industries (EXIIND) 149 175 Buy 12674 6.4 7.2 8.7 23.2 20.6 17.1 14.4 12.4 10.5 18.9 19.7 21.3 13.5 13.9 15.1Hero Mototcorp (HERHON) 2583 2625 Hold 51578 119.5 155.9 175.0 21.6 16.6 14.8 0.0 0.0 0.0 45.9 48.5 45.3 36.5 39.1 36.9JK Tyre & Ind (JKIND) 99 130 Buy 2243 14.5 22.6 24.7 6.8 4.4 4.0 5.2 3.8 3.5 18.7 23.5 22.7 23.3 27.5 23.5M&M (MAHMAH) 1233 1525 Buy 72784 50.7 61.6 78.8 24.3 20.0 15.6 18.0 11.5 9.0 14.5 17.0 19.9 17.1 16.5 18.2Mahindra CIE (MAHAUT) 257 300 Buy 8311 -2.4 8.8 13.1 NA 29.1 19.6 22.7 13.5 10.8 -4.1 12.3 16.9 5.9 11.5 15.9Maruti Suzuki (MARUTI) 4483 5090 Buy 135463 122.9 178.3 231.5 36.5 25.1 19.4 20.1 14.2 11.4 17.2 23.6 24.5 15.6 19.3 20.9Motherson (MOTSUM) 246 347 Hold 32513 6.5 10.7 18.8 37.7 22.9 13.1 15.1 12.4 8.2 24.7 27.9 38.7 25.9 34.5 46.0Tata Motors (TELCO) 382 480 Buy 117083 41.2 40.5 52.5 8.5 8.7 6.7 3.4 3.3 2.6 22.8 14.8 16.3 24.9 13.8 15.2Wabco India (WABTVS) 6828 6080 Hold 12973 63.6 114.8 168.9 107.3 59.5 40.4 57.2 37.2 26.4 14.0 20.5 23.5 18.2 24.4 27.8

Sector / CompanyRoE (%)EPS (|) P/E (x) EV/EBITDA (x) RoCE (%)

Source: Company, ICICIdirect.com Research *FY14E numbers for Escorts are for 18 months (Oct’12 to Mar’14)


RATING RATIONALE ICICIdirect.com endeavours to provide objective opinions and recommendations. ICICIdirect.com assigns ratings to its stocks according to their notional target price vs. current market price and then categorises them as Strong Buy, Buy, Hold and Sell. The performance horizon is two years unless specified and the notional target price is defined as the analysts' valuation for a stock. Strong Buy: >15%/20% for large caps/midcaps, respectively, with high conviction; Buy: >10%/15% for large caps/midcaps, respectively; Hold: Up to +/-10%; Sell: -10% or more;

Pankaj Pandey Head – Research [email protected]

ICICIdirect.com Research Desk, ICICI Securities Limited, 1st Floor, Akruti Trade Centre, Road No 7, MIDC, Andheri (East) Mumbai – 400 093

[email protected]


ANALYST CERTIFICATION We /I, Nishit Zota, MBA & Vidrum Mehta, MBA research analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our views about the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report.

Terms & conditions and other disclosures: ICICI Securities Limited is a Sebi registered Research Analyst having registration no. INH000000990. ICICI Securities Limited (ICICI Securities) is a full-service, integrated investment banking and is, inter alia, engaged in the business of stock brokering and distribution of financial products. ICICI Securities is a wholly-owned subsidiary of ICICI Bank which is India’s largest private sector bank and has its various subsidiaries engaged in businesses of housing finance, asset management, life insurance, general insurance, venture capital fund management, etc. (“associates”), the details in respect of which are available on www.icicibank.com. ICICI Securities is one of the leading merchant bankers/ underwriters of securities and participate in virtually all securities trading markets in India. We and our associates might have investment banking and other business relationship with a significant percentage of companies covered by our Investment Research Department. ICICI Securities generally prohibits its analysts, persons reporting to analysts and their relatives from maintaining a financial interest in the securities or derivatives of any companies that the analysts cover. The information and opinions in this report have been prepared by ICICI Securities and are subject to change without any notice. The report and information contained herein is strictly confidential and meant solely for the selected recipient and may not be altered in any way, transmitted to, copied or distributed, in part or in whole, to any other person or to the media or reproduced in any form, without prior written consent of ICICI Securities. While we would endeavour to update the information herein on a reasonable basis, ICICI Securities is under no obligation to update or keep the information current. Also, there may be regulatory, compliance or other reasons that may prevent ICICI Securities from doing so. Non-rated securities indicate that rating on a particular security has been suspended temporarily and such suspension is in compliance with applicable regulations and/or ICICI Securities policies, in circumstances where ICICI Securities might be acting in an advisory capacity to this company, or in certain other circumstances. This report is based on information obtained from public sources and sources believed to be reliable, but no independent verification has been made nor is its accuracy or completeness guaranteed. This report and information herein is solely for informational purpose and shall not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial instruments. Though disseminated to all the customers simultaneously, not all customers may receive this report at the same time. ICICI Securities will not treat recipients as customers by virtue of their receiving this report. Nothing in this report constitutes investment, legal, accounting and tax advice or a representation that any investment or strategy is suitable or appropriate to your specific circumstances. The securities discussed and opinions expressed in this report may not be suitable for all investors, who must make their own investment decisions, based on their own investment objectives, financial positions and needs of specific recipient. This may not be taken in substitution for the exercise of independent judgment by any recipient. The recipient should independently evaluate the investment risks. The value and return on investment may vary because of changes in interest rates, foreign exchange rates or any other reason. ICICI Securities accepts no liabilities whatsoever for any loss or damage of any kind arising out of the use of this report. Past performance is not necessarily a guide to future performance. Investors are advised to see Risk Disclosure Document to understand the risks associated before investing in the securities markets. Actual results may differ materially from those set forth in projections. Forward-looking statements are not predictions and may be subject to change without notice. ICICI Securities or its associates might have managed or co-managed public offering of securities for the subject company or might have been mandated by the subject company for any other assignment in the past twelve months. ICICI Securities or its associates might have received any compensation from the companies mentioned in the report during the period preceding twelve months from the date of this report for services in respect of managing or co-managing public offerings, corporate finance, investment banking or merchant banking, brokerage services or other advisory service in a merger or specific transaction. ICICI Securities or its associates might have received any compensation for products or services other than investment banking or merchant banking or brokerage services from the companies mentioned in the report in the past twelve months. ICICI Securities encourages independence in research report preparation and strives to minimize conflict in preparation of research report. ICICI Securities or its analysts did not receive any compensation or other benefits from the companies mentioned in the report or third party in connection with preparation of the research report. Accordingly, neither ICICI Securities nor Research Analysts have any material conflict of interest at the time of publication of this report. It is confirmed that Nishit Zota, MBA & Vidrum Mehta, MBA, research Analyst of this report have not received any compensation from the companies mentioned in the report in the preceding twelve months. Compensation of our Research Analyst is not based on any specific merchant banking, investment banking or brokerage service transactions. ICICI Securities or its subsidiaries collectively or Research Analysts do not own 1% or more of the equity securities of the Company mentioned in the report as of the last day of the month preceding the publication of the research report. Since associates of ICICI Securities are engaged in various financial service businesses, they might have financial interests or beneficial ownership in various companies including the subject company/companies mentioned in this report. It is confirmed that Nishit Zota, MBA & Vidrum Mehta, MBA, research Analyst do not serve as an officer, director or employee of the companies mentioned in the report. ICICI Securities may have issued other reports that are inconsistent with and reach different conclusion from the information presented in this report. Neither the Research Analyst nor ICICI Securities have been engaged in market making activity for the companies mentioned in the report. We submit that no material disciplinary action has been taken on ICICI Securities by any Regulatory Authority impacting Equity Research Analysis activities. This report is not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, where such distribution, publication, availability or use would be contrary to law, regulation or which would subject ICICI Securities and affiliates to any registration or licensing requirement within such jurisdiction. The securities described herein may or may not be eligible for sale in all jurisdictions or to certain category of investors. Persons in whose possession this document may come are required to inform themselves of and to observe such restriction.

Documents

November 3, 2015 Escorts (ESCORT) Target : Target Period ...content.icicidirect.com/mailimages/IDirect_Escorts_Q2FY16.pdf · margin expansion YoY. Margins (EBIT) of the agri machinery