Escorts Kubota Ltd. share price target

Limited impact of COVID in rural areas provides a relative cushion: Escorts '80%+ revenue comes from the agri-machinery segment and the limited impact in rural areas of corvid-19 should provide a relative cushion to the overall demand of tractors.

We are enthused by Kubota's entry as a strategic investor in Escorts, especially given its leadership in the farm implement space. Kubota brings a global presence, significant technological prowess and production excellence. However, we await cash utilisation plans at Escorts before any meaningful change in stance on the company. We are constrained by limited dividend payouts by Escorts in the past with no firm outlook, going forward. We value Escorts on an SOTP valuation basis and maintain our HOLD rating on the stock with a revised target price of | 715....

However softening metal price, cost control initiative and superior product mix expanded the margin to 90bps at 13.1%. Adj. PAT grew by 18.5%YoY supported by lower tax. The government's action towards increase in rural income & consumption will be the prime factor in budget FY20-21. We expect the revenue to grow by 10% CAGR over FY20-22E by factoring 9% volume growth owing to pick up in the construction equipment and expected revival in the tractor sales....

Slim volume growth, muted market share gains to drag topline! Given the inherently cyclical nature of the domestic tractor industry and high installed base (record volume of 7.9 lakh units in FY19; 17.0% industry CAGR over FY16-19), our volume growth expectation for FY19-22E remains moderate (Escorts volumes seen growing at 2.8% CAGR to 1.04 lakh units). Market share gains would be required to propel growth at the company. However, FY20TD performance, thus far, is mixed (~16 bps improvement YoY to 11.2%; market share losses in key large states like Uttar Pradesh &...

Escorts 3QFY20 performance is a reflection of stability in volumes, benefit of mix improvement and cost savings, all of which should sustain in the coming quarters. Tractor volumes declined ~2% YoY, but net realizations improved ~2.4% YoY (+2% QoQ) to ~INR514.4k (v/s est. Tractor business PBIT margins improved 20bp YoY (+420bp QoQ) to ~14.5%. CE business PBIT margins improved ~130bp YoY (+210bp QoQ) to ~4.8%, driven by mix despite volume decline of 26% YoY. Rail business PBIT margins declined ~150bp YoY (-70bp QoQ) due to higher contribution of new products (having higher import content). It has got an approval for 3 new products and has a We are upgrading our EPS estimates by 9%/5% for FY20/FY21 to reflect the improving outlook for tractor volumes, improving mix and cost savings. We are upgrading our EPS estimates by 9%/5% for FY20/21 to reflect for improving outlook for tractor volumes, improving mix and cost savings.

Escorts Ltd (EL) is the third largest Agricultural tractor manufacturer in India. It has a strong presence in the north and west market, with an overall market share of 11.9% as on FY19....

struction equipment. The Company's segments are Agri Machinery, Auto Ancillary Products, Railway Equipment, Construction Equipments and Others. It is engaged in the business of manufacturing of engines for agricultural tractors, earth moving and material handling equipment, round and flat tubes,...

Domestic tractor industry has been at the forefront of farm mechanisation and witnessed robust growth in FY16-19, with total industry volumes rising ~50% to a record high of 7.9 lakh units in FY19. Due to its inherently cyclical nature, high base and muted farm incomes, we expect the industry to largely consolidate at this level of output in FY19-21E. While H1FY20 registered ~10% drop in volumes, excellent monsoons this year and some state subsidy support over H2FY20E are seen helping the industry post negative single digit decline in FY20E. Escorts has previously demonstrated its ability...

to ~INR504k due to a weaker mix. EBITDA margin of 9.6% (our estimate: 9.8%) was impacted by operating deleverage and an adverse mix in Tractor/Rail. PBT declined ~24% YoY, but lower tax drove PAT growth of ~10% YoY to INR1.1b (our estimate: INR1b). Tractor segment PBIT margin shrank ~440bp YoY (-60bp QoQ) to 10.3%. 1H performance: ESC reported positive CFO of ~INR3b (v/s negative ~INR2.7b in 1HFY19), led by lower working capital. FCFF was at ~INR2b (v/s INR3.4b in 1HFY19). Revenue/EBITDA/PAT declined ~6%/21.5%/9.5% YoY. Earnings call highlights: (a) Industry volumes declined 10% YoY. ESC's strong...