We hereby present you our investment idea for Equity Investment i.e “Pick of the Week”. A thorough analysis of company, industry and economy goes behind our stock ideas for you. With the “Pick of the Week”, you may earn superior returns in stock market over a time horizon of 6 – 9 months.

INVESTING RATIONALE

• Escorts derives 79% of the topline from wide range of 10-75HP tractors primarily under the Farmtrac, Powertrac and Steeltrac brands. The company sources 15% of revenue from Construction and material handling equipment and rest from railway equipment.

• Having turned around on back of revamp of product portfolio over last 3 years, the healthy financing tieups along with increase in dealer network has helped the company improve its market share in Western part of the country (from 7.8% in FY16 to 9.5% in FY18). Going forward, the company is focusing on the improving the overall market share to mid-teens. Increasing focus on exports (3.7% of revenue) should help to sustain volume growth in near term.

• Turnaround in the construction equipment business is led by change in product mix and cost rationalization. Focus on further cost cutting along with operating leverage would help the company improve its margins in near future. Ramp up of the profitable railway equipment segment would further help the company build its margins.

• Management expects strong growth momentum in tractors to continue in rest of the FY19 and some moderation in FY20. Escorts is expected to gain market share in tractors on back of wide range of portfolio. The company would also benefit from the robust order book of railways division and construction equipment segment would benefit from steady infra activity.

• We maintain a BUY with a target of Rs 836.