Neutral Escorts Kubota; target of Rs 3560: Motilal Oswal

Motilal Oswal's research report on Escorts Kubota

Escorts Kubota’s (ESCORTS) 2QFY25 operating performance was stable YoY as the company reported flattish revenue/EBITDA growth YoY. The recent amalgamation with group companies has led to 150-200bp margin dilution for the business, given the higher mix of imports. To factor in for the same, we have cut our EPS estimate by ~11% for FY26E, keeping FY25E the same. The recent divestment of its Railways business on a slump sale basis to Sona Comstar did not sit well with investors, who were left surprised with the decision to divest a solid business at cheap valuations. We retain a Neutral rating on the stock with a TP of INR3,560, based on ~28x Sep-26 EPS.

Outlook

The stock is trading at a premium of ~36x/32x FY25E/26E EPS, compared to its 10-year average of ~18x, mainly due to the Kubota parentage. We maintain a Neutral stance with a TP of INR3,560 (28x Sep’26 EPS).