All stocks related to the agriculture industry soared but one stock outperformed all of them, especially the auto index.
Dramatic shift of demand was witnessed during the nationwide lockdown this year. The demand for food items and agriculture rose, placing the focus back on the rural India. All stocks related to the agriculture industry soared but one stock outperformed all of them, especially the auto index.
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India's leading tractor manufacturer Escorts remained the only auto stock that doubled investors' wealth in three months. In fact, the agri stock remains on most brokerages radar given its continued growth and sales.
The stock zoomed 113 percent since March lows to current levels. It means that if you had invested Rs 1,00,000 in the stock before March this year, you would've reaped a total profit of Rs 2,13,000 by now.
Valuation-wise, Escorts is trading at attractive levels, with P/E of 28.37x and return-on-equity (RoE) at 16.75 percent.
Moreover, Escorts' shares hit a lifetime high today, at 1,118.7 per share on the NSE.
Strong demand and sales growth remains the primary reason behind the massive rally in stock.
In June, the company reported strong sales growth of 21.2 percent to 10,851 units from 8,960 units in the same month last year. The sales were significantly higher by 64.5 percent from that in May.
"We have seen unprecedented demand in this month. The industry is expected to grow significantly backed by pent-up demand of the lockdown period, better farmer sentiment due to good monsoon prediction reflected in better than normal Kharif sowing, better rural cash flows owing to record crop output and crop prices, and reasonably good availability of retail finance," the company said in a regulatory filing.
Among brokerages, Edelweiss has placed a long-term bet on Escorts, with target price at Rs 1,332.
"Given the strong traction in the rural economy on the back of a bountiful crop
season last year, supported by increase in the minimum support price (MSP), expectation of a plentiful monsoon this year and healthy reservoir levels, we expect the start of next tractor upcycle to last for another two years," noted the brokerage.
It further added that no major near-term capex and purchase of stake from Kubota will improve cash flows and strengthen its balance sheet.
The rural sentiment is likely to reflect in tractor sales, which likely normalised to pre-pandemic levels in June, said analysts from Nomura, Emkay and Motilal Oswal.
Rural India also led the recovery in car and two-wheeler sales, as urban demand remained muted, added the brokerages in their respective reports.
Investors and Mutual Funds
Not just brokerages, ace investor Rakesh Jhunjhunwala also remained bullish on the stock. At the end of March 31, 2020, the investor held 91 lakh shares or 7.42 percent stake in Escorts. He invested 50 lakh shares in Escorts in the September 2013 quarter.
Apart from the ace investor, 28 mutual funds also held 1.21 crore shares worth to 9.94 percent stake for the quarter ended March 31, 2020.
First Published: IST