Stock Outlook
The Current Market Price (CMP) of Orient Cements on NSE is Rs 1778.05 apiece. On Friday, the stocks slid 1.42% down from their previous close. The stock’s 52-week low is Rs 1183.20 apiece recorded on 23 August 2021, and the 52-week high is Rs 1934 apiece recorded on 05 April 2022.
The market capitalization of the stock is 23,414.84 crore. The ROE is 9.69%. TTM PE ratio is 33.50. PB Ratio is 3.08. TTM EPS is 52.97. The Dividend yield is 0.39% and the face value is Rs 10.
Returns on Investment
Last week, the shares of the company surged 5.55%. In the past 1 month, the shares surged roughly 1.1%. Over the past 1 year, it has given a return of 44.29%. Over the 3 and 5 years, the stocks gave a multibagger return of 282.1% and 183.13%, respectively.
1QFY23
Escort Kubota’s 1QFY23 consolidated revenue came at Rs 20.3bn (+19.4%YoY/+8.2%QoQ) amidst moderate growth in tractor volume and pricing pressure. The EBITDA margin plunged to 10% (-390bps YoY/-280bps QoQ), the lowest in the last 10-quarters. The drop in margin is largely contributed by the RM cost inflation. Furthermore, the adverse product mix and drop in market share weighed on the margin. The market share loss is likely to compel the company to restore it while forgoing the margin profile. The late cooling off in RM inflation will offer some respite to the margins in the coming quarters.
The PAT has declined to Rs 14.6bn (-21.2% YoY/-26% QoQ). Escorts lost a market share of 140bps YoY. The tractor sales posted marginal growth of 3.3%YoY (+22.4%QoQ) at 26,797 units. The railway equipment revenue was up by 0.3% at Rs 1.7bn. Construction equipment sales has improved by 59.4% YoY (-24.9% QoQ) at 966 units. The higher sales of lower HP tractors disrupted the product mix ultimately dragging on the overall performance.
The agri-machinery segment’s revenue grew by 12.6% YoY and 16.42% QoQ to Rs 16bn. The EBIT margin had a downfall at -496bps YoY and -484bps QoQ. The construction equipment segment had a mixed performance at 74.5% increase in revenue YoY. There venue increased to Rs 1.7bn with the railway equipment segment. The railway business orderbook has almost doubled QoQ to Rs 8.5bn from Rs 4.4bn as on Q4FY22. The management is expecting a double-digit growth in FY23 revenue.
Merger
The merger process of the company with Kubota India businesses is going on and the management expects to finalize the contours of the deal in the next one month or so. Competition’s inventory is expected to be higher by a couple of weeks while channel inventory for Escorts remains under control at 1 month. Escorts recorded its highest ever quarterly export sales at 2.2k units, with at over 20% export volumes and almost 70%of exports being made to Europe through Kubota channel.
Management Commentary
The management expects the domestic tractor industry to grow at low to mid-single digit. The upcoming quarters are not going to see any let up in demand, as factors influencing demand are strong. With uneven monsoon affecting business in Bihar, UP and parts of MP, forecast suggests that it will be catching up. The reservoir levels suggests that water availability is very good across the country. This states that poor monsoon might not affect this year but next year.
The management expects margins to start improving from 2QFY23 onwards, which is led by a 2% price hike taken so far along with softening in commodity prices. The current commodity prices indicate that the company can benefit from lower steel prices in 2Q in spite of a probable inflationary impact on conversion cost.
Buy for a target price of Rs 1,970
The agri-demand outlook is gradually improving which will turn beneficial for the company. The revival in rural consumer sentiments led by normal monsoon expectations is likely to aid the volumes. The subdued EBITDA margin performance is expected to persist and remain a critical concern. The losing market share might compel the company to overlook the margins in near term. At CMP the stock is trading at P/E of 23.5x & 20.3x its FY23 & FY24 EPS on our revised estimates. We revise our rating on the stock to OUTPERFORMER with a target price of Rs 1,970. Risks: Loss of market share, input cost pressure, uncertainty in the tractor cycle.
