Motilal Oswal's research report on Escorts Kubota
Escorts’ 2QFY26 PAT at INR3.2b was below our estimate of INR3.7b due to a lower-than-expected margin improvement and lower other income. Both tractor and construction equipment margins were below our estimates. Given the improved outlook for the tractor industry after the GST rate cuts, management has raised its growth guidance for the industry for FY26E to low double digits from mid-single digits earlier. However, market share loss for Escorts over the last several quarters remains a key concern.
Outlook
While synergies between Escorts and Kubota are significant, they will likely materialize over the medium to long term. However, valuations at ~30.4x/27.9x FY27E/FY28E EPS appear to be already factoring in most of the synergy benefits. Hence, we reiterate our Neutral rating on the stock with a TP of INR3,672, based on ~28x Sep’27E EPS.
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