Escorts Limited recently interacted with Escorts management. Company is in the process of completing its divestment of major part of its Auto Products business. Its focus is increasing on its core business of Agri Machinery (EAM). It also increases its efforts to expand the most profitable railway business. We believe that company’s recent strategic initiatives in terms of reducing exposure in loss making entities, increasing efforts for expansion of profit making business and more focus on cost rationalization would pay off over next 2-3 years. Escorts’ auto ancillary segment has been bleeding since long, particularly its OEM segment. Management has planned sale of OEM and exports division of the segment initially, while retaining after sales with company for a year’s period. However, over a period, it would completely exit from its auto parts business.

It would sell the plant and machinery while retaining land and building assets for future development. This strategic decision strengthens our positive view on the management’s commitment to enhance the returns by focusing on profitable segment and divesting loss making entities.They maintain our volume and financial estimates for FY17E/FY18E. Accordingly, maintain target price of Rs 415/share, valuing it at 12xFY18E EPS and they reiterate “BUY” on Escorts.