RIL has remained flat in last two months, should one buy its shares now or not?

With the monsoon in India likely to be normal this year, all eyes are on agri-related stocks on Dalal Street. Of late, leading tractor player Escorts has received several bullish calls from market watchers on the back of a better cash flow position with farmers due to three consecutive bumper crop seasons and expectations of good rainfall this year, which will support demand for its products.

With a total holding of more than Rs 770 crore, ace stock picker Rakesh Jhunjhunwala also held 64 lakh shares, or 4.8% stake in the company as of March 31. Shares of the company have underperformed the benchmark equity index BSE Sensex during the past one year. The scrip has gained 25% to Rs 1,216.45 on June 3, 2021 from Rs 972.55 on the same day in 2020. On the other hand, the benchmark BSE Sensex has gained 53% during the same period.

Escorts has been among the leading players in the tractor industry and a well-known brand in the farm equipment space since independence. During the last two decades, it has forged one of the most extraordinary turnaround stories in the history of the domestic automobile industry through focused and rigorous efforts.

Monsoon forecast
The weather department earlier this week projected that monsoon rains would be 101% of the Long Period Average (LPA) of 88 cm. On April 16, it said the rain would be 98% of the LPA. In the agency’s parlance, this still constitutes ‘normal’ rainfall which is anywhere from 96-104% of the LPA.

While keeping interest rates stable, the RBI Governor Shaktikanta Das on June 4 also said a normal monsoon will provide a tailwind for economic revival.

Should you buy Escorts?

Brokerage Edelweiss Securities is positive on Escorts with a price target of Rs 1,293. “With the turnaround implemented successfully, the management now has arsenal like strong financials, balance sheet, healthy product offerings across businesses and access to foreign technology and tie-ups with strategic international partners to kick-off the next growth phase,” the brokerage said, adding tractor demand to recover gradually in India depending on the severity of the second Covid wave tapering off and the lockdown scenario easing across the country.

On the other hand, Motilal Oswal Financial Services has ‘Neutral’ rating on Escorts with a price target of Rs 1,300. “While all macro, farm economic indicators and availability finance are positive, the impact of the Covid-19 pandemic in rural India can act as a dampener. Tractor business to post steady-state PBIT margin of 17-18%. However, considering higher cost inflation, margin in FY22 may be 100-150 basis points lower than the new range. Tractor demand from the non-agri segment (30-35% of total volume) to pick up in FY22, which would be the key contributor to its growth guidance,” Motilal Oswal Financial Services said.