Escorts Kubota Ltd. share price target

Escorts has been among the leading players in the tractor industry.

Escorts in involved in production of agri-machinery, construction and material handling equipment and railway equipment from its plants at various locations. The company sells a wide range of tractors under the Farmtrac,...

We maintain our HOLD rating on the stock. We revise our Target Price to Rs 1,900 (Rs 1,450 earlier) based on 19X FY24E EPS (15X FY24E EPS earlier).

ESC's board on 18 Nov'21 approved sale of ~6.4% stake in the company to Japan's Kubota Corp. for ~INR18.7b (at INR2,000/share), taking Kubota's stake to ~16.4% (after the extinguishment of the first round of treasury shares). This will trigger an open offer by Kubota for a 26% stake in ESC. Assuming the successful open offer and cancellation of all treasury shares, Kubota's stake in ESC will rise to 53.5%. Its stake will rise further as it is consolidating its Indian operations under ESC by merging two JVs in India with ESC. These transactions further strengthen its relationships, which was initiated in Dec'18 through a JV and transited to ~10% stake purchase in Mar'20....

Despite lower volume in tractor, EL reported 1% revenue growth in Q2FY22. This was largely on account of 59% YoY growth in Construction Equipment's and 6% YoY growth in Railway segment. EBITDA margin contracted by 570bps due to adverse impact of rising commodity cost and negative operating leverage. The government's action towards improving the agricultural productivity through mechanization will continue to drive volume growth. However, due to the ongoing pandemic the government's...

Operationally inline quarter

Segment wise performance: (Escorts Agri Machinery): Tractor volumes came in at 21,073 units during 2QFY22 vs. 24,441 units in 2QFY21 (-14% YoY). Segmental revenue at 12.5bn during 2QFY22 vs. 13.2bn in 2QFY21 (-6% YoY). (Escorts Construction Equipment): The sales volume for 2QFY22 was up 31% at 1,074 machines as against 821 machines in 2QFY21. The break-even number currently is 250 machines per month. EBIT margin for 2QFY22 stood at 3.6% against 1.7% YoY. Going forward, with improved funding availability and government thrust on infrastructure projects, demand is expected to recover to its full potential. (Railway Equipment Division) recorded a top line of 170mn vs. 160mn in...

Escorts reported a decent performance in 1QFY22 with top line growing by 56.2% YoY to 17.1bn (low base of 1QFY21), however there was a decline of 24% QoQ on account of a 20% QoQ decline in tractor volumes and fall in revenue in the Construction Equipment (ECE)...

We maintain our BUY rating on the stock keeping our target price unchanged at Rs 1,350 valuing the company at 15x FY23E P/E.