From a small agency house in 1944 to one of the largest engineering conglomerates in India. Escorts has been helping in enhancing the level of farm mechanization for the past 75 years. Escorts is a leading engineering conglomerate manufacturing best-in-class equipment for agriculture, infrastructure and railways. Ever since inception the Company had played an important role in helping shape the country’s socio – economic progress. The Company helps farmers to facilitate food security for huge population India and the world. Escorts is preferred partner in nation – building as India focuses on enhancing its infrastructure capabilities. The Company also ensure safety and comfort for passengers in the world’s second largest railway network.

Valuation & View -  We remain optimistic on the Company’s roadmap for the future growth on back of enhanced capacity, improving profitability, debt free balance sheet to support the future growth, efficient working capital management, which will helps the Company to improve its ROCE and scales up its cash flow generation ahead. In terms of profitability, the Company has outperformed majority of the peers in the farm mechanization space over the years. We project robust growth in revenue in all three business verticals Escorts Agri Machinery (EAM) expected to grow at ~13%, Escorts Construction Equipment (ECE) expected to grow at ~14% and Railway Equipment Division (RED) expected to grow at ~4?GR between FY21-FY23E. Escorts is one of the few conglomerates which provide high degree of overall growth (top to bottom), which comes partially from the Company’s historical track record and its performance vis-à-vis its competitors.  Currently, the stock is trading at 15.2x FY23E EPS.  We initiate coverage, with a “BUY” recommendation at a target price of Rs 1886 for the period of 12 months (upside of 24%) valuing the Company at 18.8x the historical average (other than shares held by Escorts Benefit & Welfare Trust/Treasury shares) on FY23E EPS.

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