Escorts Kubota Q4 Results Review: Target Price Raised On Exports Prospects, Product Launch

Most brokerages hiked the target price of Escorts Kubota Ltd. as they expect better exports prospects in the ongoing financial year due to new product launches and support from Kubota. Moreover, brokerages expect the tractor maker to gain market share.

The company's consolidated net profit rose 16.36% year-on-year to Rs 251.89 crore during January–March, according to an exchange filing.

Escorts Kubota is building robust medium-term growth prospects with support from Japanese multinational company Kubota, Nuvama said in a report. Merging with Kubota is likely to open exports opportunities for the Indian tractor maker and aid in product development.

Nuvama also expects a turnaround in agricultural growth in FY25 due to benign government policies and the assumption of a normal monsoon. Escorts Kubota's revenue from the agricultural segment declined in FY24 by 10% on an annualised basis.

Emkay Global Research deemed the company's exports outlook to be strong because of product launches in the pipeline and the start of direct component exports to Kubota.

Escorts aims to address losses in its market share in north India and also focus on Western India through new launches, the brokerage said in a note on Thursday.

CLSA priced in a market share gain of 10.3% to 13%. 

Most brokerages raised the target price for the stock but held their rating or reduced it as the domestic tractor industry's growth outlook remains dull compared to Escorts Kubota's growth outlook.

"Industry continues to come off a high base, and sentiment is yet to start improving meaningfully," Emkay Global Research said.

• Revenue fell 5.47% to Rs 2,093.53 crore.

• Ebitda rose 11.75% to Rs 260.56 crore.

• Margin rose 191 basis points to 12.44%.

• Net profit rose 16.36% to Rs 251.89 crore.

• CLSA maintained a 'sell' rating but raised the target price to Rs 2,151 from earlier Rs 2,013. This implied 40% downside from Thursday's closing price.

• The brokerage believes valuation is quite expensive considering tractor industry is mid-single digit growth industry.

• The fourth quarter volumes fell due to lower-than-average rainfall and high base from last year.

• Increase our growth estimate for domestic tractor industry volumes for FY25 from 5% to 10%

• Factoring in market share gains for Escorts over the next eight years, from 10.3% to 13%.

• CLSA believes this is already factored in the stock.

• Nuvama retained a 'buy' with target price Rs 4,200 apiece, implying an upside of 21%.

• Agri growth is likely to turn around in FY25 on expectation of a normal monsoon and benign government policies

• Building in robust medium-term growth prospects driven by global Kubota’s support

• Kubota's support in form of the merger of Kubota India trading entity;

• Opening up of export opportunities and product development support.

• Revenue CAGR of 30%/22% over FY24–26E/FY24-28E and Ebitda CAGR of 34%/26%.

• Emkay Global Research reduced the rating to 'add' from 'buy'.

• The brokerage raised the target price to Rs 3,850 apiece from Rs 3,350 apiece, implying an upside of 12%.

• Strong export outlook backed by new product introduction

• Commencement of direct component exports to Kubota amid global sourcing shift to India

• Management guided for low-to-mid single-digit industry growth in FY25 on normal monsoons

• Raise FY25E/26E EPS by 2%/3% on higher other income

• Change rating to ADD from Buy

• Revised up the target price of Rs 3,850 per share versus Rs 3,350 earlier (27.5x FY26E core PER + Rs300 cash/sh)

Escorts Kubota Ltd. rose 3.97% to Rs 3,582.00, the highest level since March 1, 1995. It was trading 2.76% higher at Rs 3,540.45 as of 11:41 a.m., as compared to 0.41% advance in the NSE Nifty 50 index.

It has declined 72.86% in 12 months. Total traded volume so far in the day stood at 4.7 times its 30-day average. The relative strength index was at 53.40.

Out of 22 analysts tracking the company, six maintain a 'buy' rating, six recommend a 'hold,' and 10 suggest 'sell', according to Bloomberg data. The average 12-month consensus price target implies a downside of 13.6%.