Reviews
In this edition, we have reviewed Ester Industries Ltd. and Escorts Ltd. We suggest our reader-investors to HOLD Ester Industries Ltd. and Escorts Ltd.
We had recommended Ester Industries Ltd. in Volume 36, Issue No. 21 dated September 13-26, 2021 in the ‘Low Price’ segment. The recommended price for the stock was ₹ 140. We had recommended the stock on the basis of its growing product portfolio, robust growth and good returns on capital employed. Ester Industries makes polyester films, specialty polymers and engineering plastic compounds with over 30 years’ experience in the business. While its headquarters are in Gurgaon, its cutting-edge manufacturing facility is in Khatima, Uttarakhand, roughly 300 km north of New Delhi. The company serves a wide customer base in 75 countries across Europe, the Americas, Africa, India, the Far East, Asia Pacific and the Middle East.
The company’s quarterly consolidated financials show that net sales skyrocketed by 43.01 per cent in Q3FY22 to ₹ 365.61 crore as compared to ₹ 255.65 crore in Q3FY21. The operating profit climbed to ₹ 62.57 crore in Q3FY22 from ₹ 56.21 crore in Q3FY21 i.e. an 11.31 per cent upsurge. On the contrary, the net profit rose to ₹ 34.52 crore in Q3FY22 from ₹ 31.53 in Q3FY21, gaining 9.49 per cent. The annual performance of net sales shows average returns of 4.02 per cent in FY21 of ₹ 991.76 crore as compared to ₹ 1031.71 crore in FY20. The operating profit surged to ₹ 239.20 crore in FY21. Subsequently, the annual net profit rose in FY21 to ₹ 137.49 as opposed to ₹ 99 crore in FY20. The company’s established market position and extensive track record in the packaging films industry is backed by high-capacity utilisation and a diverse product portfolio.
It is working on building relationships with a continued focus on expanding its global footprint. It also has a clear focus on new products and application development projects. Its priorities also include enhanced research and develop- ment and EP compounding capability aligned with technological developments while taking care of changing customer needs like paint-free solutions, etc. Ester Industries experienced substantial growth in the third quarter of FY22 and the first nine months of FY22 thanks to good results across all segments. The stock has appreciated 33.16 per cent in one month. CRISIL Ratings has also upgraded its ratings on the bank facilities of Ester Industries ‘CRISIL A’ from ‘CRISIL A-’. Hence, we recom- mend HOLD.
We had recommended Escorts Ltd. in Volume 36, Issue No. 21 dated September 13-26, 2021 in the ‘Analysis’ segment. The recommended price for the stock was ₹ 1,386. We had recommended the stock on the basis of increasing project portfolio, growing industrialisation and the optimistic outlook for the railway component industry. Escorts Limited, a renowned engineering firm in India, is a preferred supplier of agricultural and construction equipment in the country. It position in high-growth areas such as agriculture machinery, construction and material handling equipment along with railway equipment has supported India’s socio-economic growth over seven decades.
The company is dedicated to contribut- ing to India’s growth story and bringing quality change to people’s lives thanks to its in-house research and development centre and cooperation with global technology giants. In terms of financial performance, its net profit decreased by 2.84 per cent from ₹ 2,042.23 crore in Q3FY21 to ₹ 1,984.28 crore in Q3FY22. Likewise, the operating profit slipped by 25.84 per cent in Q3FY22 to ₹ 305.23 crore as compared to Q3FY21 which was ₹ 411.59 crore. Accordingly, the net profit also dropped by 32.37 per cent to ₹ 193.71 crore in Q3FY22 from ₹ 286.42 crore in Q3FY21. The annual performance of the company shows positive results. Its net profit showed above average rise of 20.73 per cent to ₹ 7,014.42 crore from ₹ 5,810.09 crore in FY20.
The operating profit showed astonishing results, gaining by 69.36 per cent in FY21 and rising to ₹ 1,287.14 crore as com- pared to ₹ 760 crore in FY20. The net profit hit the roof with returns zooming 84.51 per cent in FY21 and giving earnings of ₹ 872.37 crore as opposed to ₹ 472.80 crore in FY20. The company’s construction equipment and railway segments are likely to benefit from the recovery in domestic economic activity. Escorts is India’s fourth-largest tractor maker with 11.3 per cent market share in FY21 and also serves the segments of domestic construction equipment and railways. The company has on-boarded Kubota Corporation (Japan) as a co-promoter with preferential allotment of fresh equity at ₹ 2,000 per share. The company’s strong financials are driven by product launches across brands and a larger addressable market. The company is looking to utilize Kubota Corporation’s export network to ramp up its exports in FY23 as the current higher exports are through its own network. The company’s competitive positioning should improve further as it deepens its relationship with Kubota Corporation, making Escorts a partner of choice for Kubota Corporation in its focused India foray. Hence, we recom- mend HOLD.
(Closing price as of Apr 13, 2022)