CRISIL Ratings has upgraded its ratings on the long-term bank facilities of Escorts to 'CRISIL AA' from 'CRISIL AA-' and revised its outlook to 'Stable' from 'Positive'.
The rating on the short-term bank facilities and commercial paper programme has been reaffirmed at 'CRISIL A1+'.
CRISIL said that the rating action follows improvement in the business risk profile driven by healthy market share in tractors and higher-than-expected demand for tractors in the domestic market, which will translate into revenue growth of 16-17% (higher than earlier expectation of 9-10%) for Escorts' tractor division (77% of revenue in fiscal 2020) in fiscal 2021.
It further said that the construction equipment (CE) business segment (15% of revenue) is expected to witness revenue growth in the second half of fiscal 2021, arresting overall decline at 20-25%. For the railway equipment segment (8%of revenue), revenue is expected to remain stable due to slow execution of existing orders and subdued order inflow.
The business risk profile will remain healthy, with market share of 11-12% in tractors, improving performance of the CE segment and healthy outlook for the railway equipment segment. Over the medium term, revenue is expected to grow at 8-10% with steady growth across business segments. The operating margin is expected at 12-14% and annual accrual at Rs 750-800 crore.
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CRISIL Ratings believes Escorts will continue to benefit from the improving market position in the agricultural equipment segment and performance of the CE segment over the medium term, while maintaining its strong financial risk profile and robust liquidity.
The Escorts Group is an Indian engineering company that operates in the sectors of agri-machinery, construction and material handling equipment, and railway equipment.
The company's consolidated net profit jumped by 85.1% to Rs 286.71 crore on a 23.8% rise in revenue from operations to Rs 2,042.23 crore in Q3 FY21 over Q3 FY20.
The scrip fell 2.10% to Rs 1349.60. It traded in the range of 1348 and 1378.60 so far during the day.
In the past three months, the stock has declined by 3.97% while the benchmark Sensex has added 17.39% during the same period.
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