Escorts: On a smooth terrain

THE fixed deposit programme of Escorts Ltd is a good option for investors with a low-to-medium risk profile.

The rates on offer are reasonable compared to other options with a similar risk profile. The company's earnings performance in the recent past was not very impressive. The gearing and ability to cover interest payments are comfortable. Given the rates on offer, investors can consider the shorter-end tenors on offer. The present status of the tractor industry does not warrant an investment from the long-term perspective.

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Escorts' fixed deposit programme offers both the fixed and cumulative schemes. While the tenure for the former is six months, one, two and three years at 10.5 per cent, 11 per cent, 11.5 per cent and 12 per cent respectively, for the same tenors, the cumulative scheme offers effective compounded yields of 10.92 per cent, 11.46 per cent, 12 per cent and 12.55 per cent respectively.

The minimum deposit amount under both schemes is Rs 10,000 with the exception of the six-month tenor, for which it is Rs 15,000. Additional investments can be made in multiples of Rs. 1,000 each. Deposits are accepted at the registered office of the company at Escorts Ltd, 11, Scindia House, Connaught Circus, New Delhi, 110 001.

Escorts Ltd is the flagship company of the Escorts group. The company's main line of business is in tractors. The group has business interests in two-wheelers and telecom, among others.

The performance of the tractor industry in the recent past was not very impressive. For instance, tractor sales for April-October 2000 declined by around 11.2 per cent compared to the corresponding previous period. For the same time-frame, tractor production was down 17.1 per cent. With the company deriving a significant portion of its revenues from the tractor business, cash flows could come under pressure.

With increasing competition and low off-take on account of piled-up inventories and drought, the company's performance in the second half of fiscal 2000-2001 needs to be watched. If the existing trend continues into the second half, the bottomline could come under pressure.

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The company's earnings performance for the first half of fiscal 2001 was fairly impressive. Sales revenues declined 14 per cent to Rs 563.49 crore compared to the corresponding previous period. In the same time-frame, operating margins also declined from 14 per cent to 11 per cent. Post-tax earnings rose by around 70 per cent to Rs 92.97 crore. The improvement in post-tax profits can be largely attributed to a substantial increase in the `other income' component in total earnings. Though the operational profile now is not all that good, the company should be able to comfortably service its FD programme.