Ploughing Back

After two years of strong growth, domestic tractor sales have hit a rough patch. In FY19, the sector witnessed volume growth of 10% (790,000 units) YoY. This comes after stellar growth of 22.1% in FY18 (710,000 units) and 18% in FY17 (580,000 units). Delay in sowing, erratic rainfall and low rabi crop production weakened rural sentiment, impacting tractor sales.

And Escorts, one of the biggest tractor manufacturers, won’t be left unscathed. Management expects worsening sales this year, admitting that the industry will only see 5-8% growth in FY20. Last fiscal wasn’t that bad for the company. The tractor segment, which contributes to three-fourth of total revenue, grew 19.8% YoY in FY19 at Rs.47.43 billion. Whereas, construction equipment grew by 35% at Rs.10.54 billion and railway equipment saw 37.7% growth at Rs.3.94 billion.

But, sour industry sentiment and weak guidance have weighed on Escorts’ stock price. It hit a 52-week low of Rs.542.50 on May 16, plunging from Rs.957 on June 1, 2018.

It has since recovered slightly, trading comfortably above Rs.600. The Nanda family-led promoter entity, Har Parshad And Company, bought shares worth Rs.112 million in mid-May. Overall, promoters and top management bought shares worth Rs.152 million between February 2018 and May 2019. In addition, 139,817 shares were transferred to Nitasha and Ritu Nanda in two separate off-market transactions by Nikhil Nanda — a day before his latest acquisition. Amidst the internal transfer, promoter stake has remained stable at 40.8% over four quarters.

In line with management’s guidance, Motilal Oswal Financial Services has cut earnings per share estimates by 4% and 5% for FY20 and FY21. “We also cut our Ebitda margin estimate by 40 bps to factor in higher expense and operating deleveraging, leading to an earning cagr of just 6.5% over FY19-21,” mentions their latest report.

Overall mutual fund holding has also reduced from 5.09% to 3.23% over the past four quarters. HDFC MF and Edelweiss MF have reduced their holding from 0.30% and 0.44% to 0.21% and 0.10%, respectively. Though, UTI MF has increased its stake marginally by 2.41% to 2.52%, while SBI MF has raised its stake by 0.09% to 0.11%. FPIs hold 24.6% stake in March 2019, as compared to 24.37% in March 2018.