This Tractor Stock May Yield Very Good Returns

Brokerage firm Geojit has a "buy" call on the stock of tractor major Escorts Ltd. According to the firm, Escorts Ltd came came out with the best quarterly financial number in September 2020 with a net profit of Rs 230 crore-up by 120 percent over the same period last year. Geojit has highlighted the below, to supports its buy call on the stock:

• Demand for the tractor is buoyant that augurs well for the company's future growth.
• The company is focusing on cost efficiency that is helping the company to expand its margin. For the first half of the current financial year operating profit margin stands at 15.5 percent as compared to 9.8 percent for the same period of last year.
• The company will be focusing on distribution to expand its reach to improve its market share.
• Due to Covid, construction equipment division of the company did not do well, but management believes that worst is over and hence next half should be better than the first half.
• The company's cash flow from operation for September 2020 was at a healthy level of Rs 778 crore as compared to Rs 295 crore in September 2019.
• The company is debt-free and has healthy cash and bank balance of Rs 2500 crore.
• The company enjoys higher patronage from institutional investors. FPIs and domestic institutional investors hold a 30.1 percent stake in the company.
• The famous investor-Rakesh Jhunjhunwala- hold a 5.64 percent stake in the company.
• Kubota Corporation, a tractor and heavy equipment manufacturer based in Japan took a 9.09 percent stake in Escorts a few months back by investing Rs 1042 crore.

  
• Escorts and Kubota also have JV to manufacture higher-end tractors where Escorts hold a 40 percent stake in the JV. The JV started trial production by September 2020.
• Our Technical indicators are suggesting bullish trend.

The shares of Escorts Ltd last closed at Rs 1,414 on the National Stock Exchange.