Escorts Kubota slips to a 9-mth low, down 27% from record high hit in April

Shares of Kubota hit a nine-month low of Rs 1,422, down nearly 4 per cent on the BSE in Thursday’s intra-day trade amid concerns over delay in near-term demand momentum due to sustained raw material cost inflation. Meanwhile, the stock also turned ex-date for final dividend of Rs 7 per share today.

The stock traded lower for the third straight day has fallen 9 per cent during this period. It was quoted at its lowest level since August 2021. With the recent fall, the stock price of Kubota has declined 27 per cent from its record high of Rs 1,930 touched on April 5, 2022.

The company is among India’s leading engineering conglomerates, operating in the high growth sectors of agri machinery, material handling, construction equipment and railway equipment. Kubota has increased its equity stake in to 44. 8 per cent by subscribing to new equity shares and through an open offer to the public shareholders of Escorts and also becoming a joint promoter of the company along with existing promoters, the Nanda family.

Escorts Agri Machinery (EAM), tractor unit of the company, domestic volume declined by 14.5 per cent at 87,043 tractors in FY2022 as against 101,848 tractors in FY2021. For FY2022, domestic market share stood at 10.3 per cent as against 11.3 per cent in the previous fiscal.

In FY2022, tractor market share declined by 1 per cent, as the company in strong like UP (at -14 per cent to -15 per cent) and Bihar (at -20 per cent) underperformed compared to some of weaker such as Maharashtra (at +20 per cent), Karnataka (at +5 per cent), Andhra Pradesh (at -3 per cent) and Gujarat (at -4 per cent), Escorts Kubota said in its FY22 annual report.

“With recent Government actions, Inflation may stabilise in near term and operating leverage may further possibly help in partially diluting the impact on margins in coming quarters for tractor segment. With Government thrust on infrastructure we expect good recovery in the later part of current fiscal year 2022-23 for Escorts Construction Equipment Segment. But steep rise in input costs leading to higher owning cost for customers remains a key cause of concern,” the company’s management said while announcing May 2022 sales numbers on June 1.

The company anticipates inflation concerns to gradually ease from Q3FY23E. However, it intends to cushion margins through price hikes and cost controls. In the tractor division, Escorts has taken a cumulative price hike of 12–13 per cent over the last 18 months, with under-recovery of 4–5 per cent. The management indicated that sustained raw material cost inflation could impact profitability and delay near-term demand momentum, analyst at Edelweiss Broking said in its Q4 result update.

The company is likely to benefit from a sustained tractor cycle recovery as higher MSPs and normal monsoon forecasts bode reasonably well for the overall industry. Furthermore, Kubota’s expertise could accelerate market share gains in the premium tractor and export market, the brokerage firm added.

Escorts’ medium-term growth prospects are encouraging, owing to expectations of support from joint promoter Kubota in localization of existing tractor imports currently done by Kubota’s India JV; leveraging Escorts for global component supplies to support Kubota’s global sales; and technology support in construction equipment, farm implements and high-end tractors, analysts at Emkay Global Financial Services said in their result update.

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