Escorts Kubota Ltd. share price target

Operating performance in 1QFY22 was driven by strong growth in the Tractor business (benefitting from the mix). The demand outlook is turning murky, which raises uncertainties over the next 12-15 months, though Kubota JV, leaner cost structure, recovery in the Railways/Construction Equipment, and a strong Balance Sheet will dilute impact on the P&L.; We cut our FY22E/FY23E EPS by 2%/11% to factor in weaker volumes. We...

We recommend BUY with TP of Rs. 1,350/share.

Escorts reported robust 4QFY21 performance with revenue growing by 60% YoY to 22bn led by 64% growth in Agri machinery products, 53% growth in construction equipment and 36% growth in railway equipment segment. EBITDA margins came...

EBITDA margin expanded by150bps due to better product mix, price hike and cost reduction. PAT grew by 93.5%YoY. 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 subsidy likely to be limited for the year FY22. Revenue & PAT to grow by 11%/12% CAGR over FY21-23E owing to better product mix , exports and Industry recovery....

In-line results; positive outlook still intact

We maintain our BUY rating on the stock but with a revised target price of Rs 1,350 (from Rs 1,600 earlier) valuing the company at 15x (from 17x earlier) FY23E P/E.

Raw material costs have increased 8-10% for Escorts in the past few months amid a sharp spike in prices of key inputs like steel and rubber (combined form ~70% of a tractor by weight). The company has been able to pass on just ~5% via price hikes so far, with one more scheduled for Q2FY22E. Apart from steep cost inflation, other margin headwinds are beginning to appear. With non-agri tractor segment set to grow faster than agri tractor segment in FY22E, product mix (in hp terms) is set to normalise towards previous levels. Faster growth of lower-margin verticals (CE and RED) vs. tractors is...

ESC's 4QFY21 operating performance was impacted by commodity cost inflation, but was partially offset by operating leverage benefits in other businesses. While its near term demand outlook looks weak due to sporadic lockdowns, the management expects a strong recovery post lifting of...

Escorts reported robust earnings for 3QFY21 with revenue growing by 24% YoY to 20.4bn against 16.5bn in 3QFY20. EBITDA margins stood at 15.3% up 505 bps YoY. The upbeat margin performance was largely driven by significant savings in other expenses. Tractor EBIT margins improved 11 bps QoQ to best ever reading of 20.1% due to operating leverage benefits. During the call Management cautioned that its near-term margin performance was at risk due to the sharp rise in input costs...

Topline performance set to remain healthy over medium term Domestic tractor industry continues to outperform the rest of the automotive industry on the back of sustained supportive tailwinds in the form of record crop procurement, remunerative crop prices and government commitment towards augmenting farm incomes as well as rural infrastructure. The company expects healthy growth momentum witnessed, thus far, in FY21E to continue with upcoming Rabi season seen being as strong as the Kharif season gone by. Within tractors, construction demand is seen recording...