Analysts at Antique Stock Broking add that greater focus on crop- and market-specific products, distribution strengthening in weak territories and greater participation in subsidy-linked volumes are likely to help Escorts going forward in terms gaining market share.
With these favourable factors in place, analysts believe Escorts has the rights elements to tide over the possible slowdown in the tractor sector. “The company has been diversifying its earnings through stronger growth in farm implements and tractor exports, widening its addressable market in the construction equipment business, and launching new products in the railway business,” they spell out.
However, the key risks to its earnings are its concentration risk and a spell of weak monsoon. Escorts is concentrated in North and East India and relies heavily on these markets. With these regions more prone to slowdown in agricultural activities if monsoon fails, volumes may of the company might be impacted in FY20. However, with weather department expecting a near-normal monsoon this risk is receding. The other positive is valuations which at 12x FY20 earnings are attractive.