Rakesh Jhunjhunwala has the talent to buy stocks which are at the inflection point. These stocks are usually quoting at very low valuations and have low risk of downside. However, as the circumstances change, the stocks become massive multibagger stocks.
A glance at Rakesh Jhunjhunwala’s latest portfolio shows that there are several multibagger stocks in it such as Titan Industries, Aurobindo Pharma, Lupin, Rallis Dewan Housing, etc.
Escorts Ltd is one stock held by Rakesh Jhunjhunwala in his portfolio which has given a mind-boggling gain of 1000% in just four years.
The Escorts Ltd stock was bought heavily by Rakesh Jhunjhunwala. He presently holds 9.16 per cent stake in the company as per the latest shareholding pattern on BSEIndia.com.
It took around four years for the Escorts stock to turn Rs 1 lakh into Rs 10 lakh.
The stock price of Escorts Ltd was Rs 50 on March 26, 2013. Presently, the stock is quoting at Rs 500.
This means that Rakesh Jhunjhunwala’s portfolio has made a gain of 1000% from Escorts Ltd in just four years.
(Video: Stock recommended by DD Sharma as value pick)
Is Escorts Ltd still a good buy?
Escorts Ltd is engaged in the manufacture of farm and construction equipment.
It has reported good results in Q3FY17. The net profit increased 11.27 per cent to Rs 22.71 crore as compared to net profit of Rs 20.41 crore in Q3FY16.
It appears that the growth momentum in the equipment sale will sustain for another 3-4 months. The scenario for the entire agriculture sector is looking promising.
The sale of tractors over the past three to four months have been extremely good.
Rakesh Jhunjhunwala Stock Tips
Good expansion plans
Escorts Ltd has a number of expansion plans for growth in the 41-50HP category. It recently launched the Euro 45 and 50 series tractors. These are being sold under the Powertrac brand. The Classic series is being sold under the Farmtrac brand.
The Company has also increased its market share by 40 basis points to 10.6 per cent in FY2016-17.
The world series tractors based on a Porsche design will also be announced by Escorts Ltd in the near future.
Dominant market share
In North India, Escorts enjoys an 18-20 per cent market share. The market share in South India is about 4-5 per cent. The North India market grew 17 per cent year on YoY basis. The South India market grew by 20 per cent YoY.
Expansion in dealer network
The focus in the Union Budget 2017 on agriculture and infra will increase farm income, rural economy and infrastructure development.
To take advantage, Escorts Ltd has identified opportunities in different markets. It is also expanding dealer network in South India.
Escorts is expected to see 14 per cent growth (CAGR) in tractor volumes over FY17-19.
Sales volume of tractors
In the month of February 2017, Escorts has shown an impressive increase of 29.50 per cent in tractor sales. The volume stands at 4,247 units as compared to 3,280 units sold in February 2016.
The domestic sales of tractors increased 28.70 per cent to 4,104 units in February 2017 as compared to 3,190 tractors in February 2016.
The export sales have also put up a robust show. The sales have increased 59 per cent to 143 units in February 2017 as compared to 90 units in the February 2016.
The Company stated that it expects to double the export sales in FY18.
Valuations of Escorts Ltd
The sharp rally in the stock price has also led to expnsive valuations for Escorts Ltd. The shares are presently trading at a price-to-earnings (PE) ratio of 42.88. This is not expensive in comparison to the industry PE ratio of 65.94.