Rakesh Jhunjhunwala likely vacated that title in the fourth quarter. Should benefits be reserved?

NEW DELHI: Shares of outperforming Escorts in the automotive sector have seen a correction of late after the erratic monsoon season weighed on volumes in its tractor segment.

Veteran investor Rakesh Jhunjhunwala, who held more than 5% stake in this tractor maker, is no longer among its top shareholders, according to the March quarter shareholding pattern, bringing some existing investors into the stock to wonder if they should also follow suit.

As for fundamentals, weak quarterly results are all likely, brokerage insights suggest, with consensus having a “hold” recommendation on the stock. That said, an average of price targets from 22 analysts still suggests 16% upside potential from now. All eyes would be on the upcoming quarterly performance and any upcoming price target revisions.

The data showed that Jhunjhunwala held 75,000,000 shares or 5.68% of the company’s share capital as of February 18. He was not one of the main shareholders holding more than 1% of the company’s capital as of March 31.

Among the company’s key developments, Kubota Corporation said in November 2021 that it would invest up to Rs 9,400 crore to become the majority shareholder of India’s fourth-largest tractor maker. In February this year, a TOI report suggested that the Nanda family promoters would continue to jointly run the company even after the Japanese partner acquired majority control.

Data available with Trendlyne suggests that Jhunjhunwala had held this stock at least since December 2015.

Kotak Institutional Equities said the company’s revenue could decline 19% year-over-year for the March quarter. This, he said, would be driven by a 24% decline in tractor segment revenue, with volumes in the quarter down 33% for the quarter due to the erratic monsoon as well as a base high. Kotak added that construction segment revenue could fall 4% year-on-year, driven by a 20% drop in volumes. The slight decline in revenue in the construction segment would be limited, thanks to higher average selling prices (ASP) due to the change in emission standard, he said.

“We expect rail segment revenue to grow 19% year-on-year, driven by improved order activity in the fourth quarter,” he said.

The brokerage sees March quarter profit at Rs 173.30 crore (down 36.1%) year on year, sales at Rs 1,799.90 crore (down 18.6%) and margin at 12.2% (compared to 13.5% in the December quarter and 15.6% in the year-a quarter ago.)

Shares of Escorts have risen 30% over the past year against a 17% rise in the BSE Auto index. Mahindra & Mahindra jumped 14.4% over the same period.

Escort stock held its gains for most of the past year, only to see some selling in April. This month, the certificate is down 6.5% so far.

Emkay Global is seeing its own-source revenue drop, due to a 24% decline in agriculture segment revenue.

“Construction segment revenue may be subdued (down 2%), while the Railway segment should see improvement (up 20%). Ebitda margin may shrink due to scale and lower gross margin,” Emkay said.

Investors would look to the company’s fourth quarter results for any revisions to price targets.