Earnings report: Escorts net profit down by 23.5% in September quarter

The impact of adverse commodity prices and product mix are the key reasons for the decline in profits.

The Agricultural machinery company Escorts posted a net profit of Rs 176 crore for the three months through September which is a steep decline of 23.5%, compared with Rs 227 crore for the corresponding period a year ago.

However, revenue from operations had a marginal increase of 1.2% to Rs 1,673 crore from Rs 1,654 crore a year earlier.

Earnings before interest, taxes, depreciation and amortisation (EBITDA) declined 29.5% to Rs 210.3 crore for the July-September period from Rs 298 crore a year earlier.

Do you wonder, despite an increase in revenue, how did the EBITDA margins got affected badly?

Segment analysis Q2-FY22

Escorts Agri Machinery (EAM) contributes 74.7% of the total revenue which is Rs 1,246 crore vs Rs 1320 crore last year same quarter,

Escorts construction equipment (ECE) contributes 15% of the total revenue which is Rs 250 crore vs Rs 158 crore last year same quarter.

Railway equipment division (RED) contributes 10% of the total revenue which is Rs 170 crore vs Rs 160 crore last year same quarter.

Reasons the YOY decline in EBIT

1. Impact of adverse commodity prices

2. Product mix

The first reason is quite inevitable, driven by the inflationary environment in the July-September quarter, which impacted many manufacturing companies profit margins.

But the second reason is company-specific, EAM is the high margin segment (EBIT margin is 15%) where tractor sales are down 18.2% on a YOY basis, which impacted the EBIT. The YoY decline of 29.4% to Rs 186 crore vs Rs 265 crore last year same quarter.

Though the ECE segment saw decent revenue growth, this is a low margin segment (EBIT margin is just 3.6%), EBIT increased to Rs 9 crore from Rs 3.5 crore last year same quarter.

It is clear now how the company struggled to maintain profit margins though they are able to increase the sales.

Owing to this, the stock price had a selling pressure after the results were out. The shares of Escorts went 1.5% down yesterday to Rs 1,491, but today it had a bounce back to Rs 1,557, 0.5% up for the day.