Escorts today announced the deal to divest majority of it Auto product business for an undisclosed amount. We see this deal as a significant positive for the company not only as it improves the profitability but also provides confidence on the company’s intent of resolving issues in various businesses. The next focus area for the top management is expected to be the turnaround of its construction equipment business. Our estimates partially factor in the said turnaround; however it is far lagging the company’s plans for the segment. While the company benefits from the resolution to its dragging business segments, a turnaround in tractor industry fortunes and a strong growth in the railways business will see substantial gains for the company over the next couple of years (60% net profit CAGR over FY16?18). We increase our EPS estimate for FY18 by 5% to factor in the sale of auto business. Phillip Capital increase their target multiple to 12x from 11x earlier given the profit and return ratio improvement post the deal. We retain our Buy rating on the stock with a revised target price of Rs 390 (Rs 310 earlier).