Escorts Kubota Hits A 52-Week High As Tractor Sales Jump In August
The stock is on course to gain for the fifth day.
Shares of Escorts Kubota Ltd. surged to a 52-week high as tractor sales rose in August, and on expectations of better demand in coming months due to festivals.
The company reported total tractor sales growth of 7.3% year-on-year to 6,111 units in August, while its closest rival, Mahindra & Mahindra Ltd., reported 1% year-on-year growth. Domestic sales rose 7.9% year-on-year to 5,308 units, while exports jumped nearly 4% to 803 units.
The company is expected to report better sales in September following a stretched peak selling season of three months this time due to the early start of the festivals, analysts said in their report.
The tractor sales will continue to consolidate, said ICICI Securities in a note, adding that Escorts tractor volume rose 14% month-on-month aided by a rise in domestic volumes.
Motilal Oswal reiterated a 'neutral' recommendation on the company, and kept target price at Rs 1,575—implying a downside of 22.06%.
The report said Escorts can attain its objectives of becoming the number one global tractor maker by volumes, and expanding revenue and profitability in Kubota if it establishes an R&D centre for designing new platforms of basic machinery. The brokerage also highlighted the need to leverage Escorts' frugal manufacturing capacity and Kubota's global quality system to manufacture products at aggressive prices.
"Such a strategy will help the company gain volume and market share in the EU and U.S. markets," Motilal Oswal said. The contribution from Kubota's global procurement, which could be hurt due to the lockdown in China, could be compensated with components by shifting the sourcing to India, the brokerage said.
According to Kotak Institutional Equities, the domestic tractor industry reported a mid-single digit year-on-year increase in volumes despite a positive monsoon "due to the deficient spatial distribution in key paddy states in Eastern India". While M&M's tractor volume rose 1%, Escorts managed 7% volume growth in August, the note said.
Shares of the company jumped 3.4% to a 52-week high of Rs 2,089.35 apiece by 12:15 p.m. on Friday. The stock was the top gainer on NSE Nifty Auto Index and is set to post gains for the fifth day in a row. Trading volume was twice the 30-day average. The Relative Strength Index was at 78, suggesting the stock may be overbought.
Of the 26 analysts tracking the company, eight maintain a 'buy', 11 suggest a 'hold' and seven recommend a 'sell', according to Bloomberg data. The 12-month consensus price target implies a downside of 19.4%.