Uiugug

 Uiugug Exploration Paper

January summer, 2012

INITIATING COVERAGE

Escorts Ltd.

SENSEX: 15857. one particular CMP: INR 66. 7 Target: INR 144 Cars (Tractors)

Escorts is the third largest tractor company in India with c. 12% market share. Tractor business makes up about the majority of the company's revenues and profits. Additionally it is present in development and material handling gear, such as coupure, compactors and forklifts with c. 54% market share in pick & carry (PNC) cranes portion. It is also engaged in railway tools and car components businesses with little contribution. Expenditure Rationale Tractor business to regain momentum Escorts offers c. twenty percent market share inside the northern area which accounted for c. 57% of it is volumes in FY11. Escorts is currently directing to increase its share in high-growing southern region wherever it has just 5% business. It is already in advanced stage to launch fresh tractor versions especially made for harder soils of AP & Karnataka. We expect tractor split topline (~72% revenue contribution) to register a CAGR of 14% over the next a couple of years. Construction gear division building muscles Escorts through it is 100% supplementary Escorts Building Equipment Limited. (ECEL) may be the market leader in the PNC segment and enjoys number 2 position in slew sillon & quantity 3 placement in Compactors in India. In order to appeal to the developing market require, Escorts with the process of doubling its ability by FY13E with a capex of INR 405 mn. We expect ECEL topline (~20% revenue contribution) to join up a CAGR of 25% over the subsequent 2 years. Auto suspension section to break-even by FY13E Escorts comes c. 3% of its revenues from Auto postponement, interruption division (ASD). ASD derives ~60% of its income from exports and ~20% from substitute & Oes respectively. Presently it is wedding caterers to the wants of two-wheeler manufacturers viz. TVS Motor, M& Meters & Suzuki in household market & Yahama, Suzuki, Aprilia & Malaguti in exports market. Escorts is definitely planning to add new products and likewise start wedding caterers to 4-wheelers manufacturers. All of us expect ASD to break-even by FY13E and register a CAGR of 44%in revenues over the next 2 years. Shareholding (%)

Promoters FIIs DIIS Others

Railway equipment division (RED) to register muted growth Escorts derives c. 4-5% of its earnings from this department. The current order book stands at INR 400 mn to be accomplished in the next 3 to 4 months. Escorts has got approval for its new products viz. Bogie mounted & Panel mounted brake devices and zero-discharge toilet coming from RDSO. It is currently awaiting acceptance from American indian railways. It has recently performed technical effort with Dako & Ingeteam for scientific enhancements. We expect REDDISH division to register a CAGR of 3% in revenues over the following 2 years. Capex Plans Escorts has prepared a total capex of INR 1400-1600 mn (ex-ECEL) to become spent within the next 2 years. A major portion of this expansion is related for purchases of R& G, adding more machines, debottlenecking of existing potential and producing the existing potential more flexible. It includes already sustained INR 500 mn up till at this point. Outlook & Valuation All of us expect Escorts to restore its dropped market share in tractors to ~13% by 11. 7% in FY11, with its the latest initiatives of launching new products specific to the needs of Southern India soil, increasing the supplier network and also with the resurrection in demand in northern marketplaces where sense to it . strong foothold. We anticipate tractors to keep the prominent business for Escorts, with 68. 8% revenue contribution in FY13E. We expect volumes in domestic tractor industry to register a CAGR of 13-15% over FY11-15E. We anticipate Escort's topline & bottomline to register a CAGR of 17% & 20% correspondingly over FY11-FY13E on the back side of consistent development in tractor division, volume-driven growth in ECEL, turning around of auto business and secure revenues from railways section. We suggest a " BUY" with a target Cost of INR 144 in 24 months, by 6x FY13E EV/EBITDA. (INR mn)

500495 ESCORTS TECHNOLOGY OF ESC...

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