Escorts Limited (ESCORTS.NS)

Escorts Limited (ESCORTS.NS)

Summary:  ON SALE
Score: 20/20
MOS: 8%
Share Price: ₹1199.90 ($16.11)
Sticker Price: ₹6031.46 ($80.99)

Escorts Limited is an India-based conglomerate and automotive engineering company that serves the agriculture, construction, material handling, and railway industries. The company was officially incorporated under the name Escorts Agents Ltd in 1944. They were converted into a public company in 1959 and in 1961 they changed their name to Escorts Ltd. Today, they are headquartered in Faridabad, India.

  • Within the agriculture industry, they manufacture farm tractors and tractor replacement parts.
  • Within the construction industry, they manufacture hydraulic mobile cranes, construction cranes, earthmoving tractors, earthmoving grabbers, backhoe loaders, and road compaction equipment.
  • Within the railway industry, they manufacture brake systems, couplers, suspension systems, and friction & rubber products.

Here are some interesting facts on the company

  • They have over 10,000 employees
  • They have sold over 1M tractors 
  • They have sold over 16,000 pieces of equipment to the construction industry

Escorts Limited has a strong focus on ESG (Environmental, Social, and Governance).

  • They work with reputable hospitals and medical organizations to increase health awareness and provide free primary care services.
  • They address women’s empowerment issues through community outreach
  • They are committed to national progress, upkeep of he ecosystem
  • They are a contributor to national and international funds that provide disaster relief

Here is what the news has to say

  • This article from moneycontrol.com says they expect net income to increase by 52%.
  • This article from moneycontrol.com says they expect 10 stocks to double over the next year, one of which includes Escorts Limited.

Here is how they stack up against the competition

Escorts Limited (ESCORTS.NS)
Summary:  ON SALE
Score: 20/20
MOS: 8%
Share Price: ₹1199.90 ($16.11)
Sticker Price: ₹6031.46 ($80.99)
2020 Revenue: ₹70B

HMT Limited (HMT.NS)
Summary:  WATCH
Score: 4/20
MOS: 80%
Share Price: ₹36.50 ($0.49)
Sticker Price: ₹183.47 ($2.46)
2020 Revenue: ₹2.6B

V.S.T. Tillers Tractors Limited (VSTTILLERS.NS)
Summary:  WATCH
Score: 14/20
MOS: 1%
Share Price: ₹2019.75 ($27.12)
Sticker Price: ₹2042.75 ($27.43)
2020 Revenue: ₹7.6B

Now let’s take a look at the 4 M’s

MOS (Margin of Safety): With a perfect score of 20/20 and a margin of safety of 80%, the financials don’t get much better than this.

Meaning: The agriculture and construction equipment market are expected to grow at a CAGR (Compounded Annual Growth Rate) of 8.72% from 2020 – 2027. As the population of India increases, the need for more food and more housing will increase. Escorts Limited is well-positioned to serve this demand.

Moat: Creating a large manufacturing company like Escorts Limited is difficult. We do see a few competitors but the revenues don’t compare to Escorts Limited.

Management: Nikhil Nanda is Chairman and Managing Director. He has served Escorts Limited for 15 years in the areas of operations, finance, and senior management. He has played a vital role in improving the financial and operational efficiency of the company. He knows the company well as his father also served as Chairman and Managing Director.

Now let’s take a look at the financials. A good value investor should be able to read the income statement, cash flow statement, and balance sheet and within 60 seconds have a pretty good idea of how the business is performing.

Currency is in INR (India Rupees)

Revenue (Found on the Income Statement)
2018:  ₹50B
2019:  ₹62B
2020:  ₹57B
2021:  ₹70B
Revenue in 2021 has increased significantly. 

Net Income (Found on the Income Statement)
2018:  ₹3.4B
2019:  ₹4.7B
2020:  ₹4.7B
2021:  ₹8.7B
Net Income has increased significantly.

EPS (Found on the Income Statement)
2018:  41.62
2019:  55.82
2020:  55.04
2021:  101.57
EPS has almost doubled in 2021. Very impressive.

Free Cash Flow (Found on the Cash Flow Statement)
2018:  ₹3.3B
2019:  -₹3.9B
2020:  ₹6B
2021:  ₹10B
Free Cash Flow did see negative numbers in 2019 but they bounced back strong in 2020 and 2021.

Total Assets (Found on the Balance Sheet)
2018:  ₹39B
2019:  ₹47B
2020:  ₹50B
2021:  ₹68B
Total Assets have increased significantly.

Total Liabilities (Found on the Balance Sheet)
2018:  ₹16B
2019:  ₹19B
2020:  ₹17B
2021:  ₹16B
Total Liabilities are decreasing which is a good sign. This is impressive for a manufacturing company. Typically as assets increase, liabilities will as well. This is not the case.

Total Debt (Found on the Balance Sheet)
2018:  ₹5.5B
2019:  ₹4.1B
2020:  ₹6.5B
2021:  ₹597M
Total Debt has dropped off considerably which is a great sign.

Total Equity (Found on the Balance Sheet)
2018:  ₹22B
2019:  ₹26B
2020:  ₹31B
2021:  ₹50B
Total Equity is increasing consistently. This is also a great sign.

With a score of 20/20 and an MOS of 80%, the financials are impressive. This is a well-run company. With the meaning, we know as the population grows the demand for food and housing will increase. With Escorts Limited serving the agriculture and constructions industries is a great place to be. With the moat, we do see a few competitors but they are significantly smaller companies than Escorts Limited. With the management, Nikhil Nanda knows this industry and company very well, having grown up with a father that lead the company and working within the company for 15 years.

Keep in mind, the Score, MOS, and Summary listed above are reported as of July 14, 2021. Please login to Tykr to see an up-to-date analysis.


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