Neutral Escorts Ltd For Target Rs.1,750 - Motilal Oswal
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Numbers above our estimate at 8.3k, up 19% YoY
Construction equipment wholesale numbers at 340 units
Tractor dispatches grew 19% YoY to 8.3k units (v/s est. 7k units).
Domestic tractor wholesales grew 20% YoY to 7.7k units (v/s est. 6k units). Exports rose 9% YoY to 649 units (v/s est. 1k units)
Sales of construction equipment grew 80% YoY to 340 units.
We expect tractor volumes to decline ~5% YoY in FY23, implying a monthly runrate of ~7.4k units, or a 7% YoY residual decline. We are estimating a 15% YoY growth in construction equipment for FY23, implying a monthly run-rate of 400 units, or a 12% YoY residual growth.
The stock trades at 22.6x/18.7x FY23E/FY24E EPS. We maintain our Neutral rating.
Management commentary:
Tractors: With the ongoing harvesting in many states, better crop price realization as against the Minimum Support Price (MSP) due to the current global geopolitical environment, prediction of normal monsoon with likelihood of good rainfall in June and July leading to possible timely sowing this year, we expect the next two months to witness strong retail sales. While we have taken a price increase in Apr’22 but commodity inflation continues and remains a key area of concern.
Outlook for the construction equipment segment: In Apr’22, the construction equipment industry witnessed continued challenge on retail demand due to cost escalation across all segments even though there is a growth over last year when the first half was impacted by COVID-related challenges. With Government thrust on infrastructure and export potential in emerging markets, we expect good recovery in the current fiscal year. However, continued inflation in input costs leading to higher owning cost for customers remains a key cause of concern.
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