Buy Escorts Kubota of Rs 2500: Emkay Global Financial

Emkay Global Financial's research report on Escorts Kubota

Q3 EBITDA declined by 28% YoY to Rs1.9bn, 10% below our estimates, due to lower gross margin. Management expects margins to normalize over the next few quarters, owing to better net pricing, commodity deflation, and cost savings. Revenue grew by 16% to Rs22.6bn, broadly in-line with our estimates. Factoring in the lower-margin assumptions, we have reduced our FY23-25E EPS by 1-4%. Following the revision, we expect robust revenue/EPS CAGRs of 26%/41% over FY23-25E. Escorts remains one of our top sector picks, underpinned by robust medium-term prospects, backed by: 1) enhanced market presence in the domestic agri machinery market, with expansion of the product portfolio, especially in wet-land tractors and farm implements; 2) improved market positioning in construction equipment (CE) on widening of the product portfolio; 3) increased exports by leveraging Kubota’s global distribution network; and 4) commencement of component exports to meet Kubota’s global requirements.

Outlook

We reaffirm BUY with a TP of Rs2,500/share (Rs2,430 earlier), based on 25x FY25E core EPS (Dec-24E earlier) and cash at Rs352/share (0.80x book).