Escorts Kubota Ltd. share price target

Early Cyclical Reversal on the Card; Upgrade to BUY Escorts (ESC) has delivered largely an in-line performance in 2QFY20. While its margin improved in construction equipment segment, the Company witnessed contraction in tractor margin. Its revenue and EBIDTA fell by 5% YoY (-7% QoQ) and 20% YoY (-11% QoQ) to Rs13.2bn and Rs1.3bn vs. our estimate of Rs13.3bn and Rs1.2bn respectively. However, due to tax credit, its adjusted PAT grew by 11% YoY (+30% QoQ) to Rs1.1bn vs our estimates of Rs865mn. Its EBIDTA margin fell by 169bps YoY and 44bps QoQ to 9.6% (vs. our estimate of 9%) mainly due to lower operating leverage and inferior product-mix in tractor segment. Better margins at construction segment...

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. Q1FY20 revenue de-grew by 6%YoY below our estimates. This was largely on account of 14%YoY decline in tractor volume growth. Excess shortfall in delayed monsoon, Higher YoY base and lower water level at reservoirs are the key headwinds for the industry Despite the hike in price, margin contracted by 230bps due to...

Tractor business to consolidate post 50%+ growth in FY16-19! The tractor industry is cyclical in nature, with periods of healthy growth regularly being followed by periods of consolidation. The current up-cycle in the domestic tractor industry started after FY16. Succeeding years, thereafter, have posted YoY growth of 21%, 22% and 8%, taking domestic tractor industry volumes to record high of 7.9 lakh units in FY19. Escorts has outperformed the industry heavily by growing volumes at ~22% CAGR in FY16-19, also expanding market share to 11.8% as of March 2019. We...

Likely Cyclical Down-turn to Drag Bottom-line; Maintain REDUCE Escorts (ESC) missed our estimates albeit marginally in 1QFY20 owing to lower operating margin and higher interest outgo. Its revenue, EBIDTA and adjusted PAT fell by 6% YoY (-13% QoQ), 23% YoY (-25% QoQ) and 27% YoY (-28% QoQ) to Rs14.2bn, Rs1.4bn and Rs875mn vs. our estimate of Rs13.9bn, Rs1.4bn and Rs911mn, respectively. Its EBIDTA margin fell by 227bps YoY and 162bps QoQ to 10% (vs. our estimate of 10.3%), mainly due to lower operating leverage. Its tractor volume fell by 14% YoY, while construction equipment volume plunged by 21% YoY. Notably, its railway segment's revenue rose by a strong 34% YoY. Its RM/sales increased by 137bps YoY (+18bps QoQ)...

Operating deleverage hurts margins: Revenue declined ~6% YoY to INR14.2b (our estimate: INR13.9b). Volumes were down by ~14% YoY in Tractors and by ~21% YoY in Construction Equipment (CE). However, Railway revenue grew ~34% YoY. Tractor realizations improved ~6% QoQ (+8% YoY) to ~INR519k, driven by higher spares revenue and ~1% price hike in Apr'19....

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. Q4FY19 revenue grew by 14%YoY in line with our estimates. The growth was largely led by 12.5%YoY revenue contribution from tractor sales and 10%YoY from the construction business. Despite the hike in price, margin contracted by 50bps due to higher Input cost. PAT grew by 8%YoY, marginally below our...

Volumes to taper across tractor space; Escorts not untouched! The domestic tractor industry has been at the forefront of farm mechanization in India. The tractor industry posted record sales volume of 7.9 lakh units in FY19 (up ~10% YoY). This is following robust 22.1% YoY growth in FY18 (7.1 lakh units) and 18% YoY growth in FY17 (5.8 lakh units). Thus, on a higher base amidst muted farm income we expect tractor industry to consolidate and revert to its long term CAGR of ~7%. Escorts has outpaced industry growth during this time, growing at ~23% CAGR over...

7 May 2019 ESCs revenue grew 14% YoY (+1% QoQ) to INR16.3b (in-line) in 4QFY19. Tractor, Construction Equipment (CE) and Railway businesses grew by 12.5%, 10% and 36% YoY, respectively. INR497k) due to a weak product mix relative to 3QFY19. EBITDA margin of 11.6% was in line with our estimate of 11.8%, as the benefit of lower RM cost (-80bp QoQ to 68.8% of sales) was offset by higher other expense (+120bp QoQ to 12.3%). Tractor segment margin shrank 200bp YoY (-120bp QoQ) to 13.1%, led by weak product mix. Lower other income of INR173m our estimate of INR1.3b).

11 April 2019 Automobiles The domestic tractor industry is in its third year of upcycle in FY19, with ~17% CAGR in volumes over FY16-19. While fortunes of the tractor industry are heavily influenced by monsoon, tractor cycles are generally four years long (three good years and one down year). Volumes will at best grow 7-8% in FY20. However, over the long term, MM is targeting a bigger play in the USD160b global farm equipment market both in tractors (USD60b) and non-tractor equipment (USD100b). Network expansion and product launches by competitors (such as Escorts) led contraction in MMs tractor market share to 40.5% in FY19. The market share contraction is explained by the weak performance in key markets such as UP (-250bp to 38.4%), Bihar (-80bp to 48.1%), MP (-190bp to 33.3%) and Maharashtra (-50bp to 44.3%). It gained share in Punjab (+290bp to 44.1%) and Gujarat (+180bp to 41.6%).

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% as on FY18. Revenue for the Q3FY19 grew by 37%YoY in line with our estimates. This...