Neutral Escorts Kubota Ltd For Target Rs. 2,001 - Yes Securities
![](https://portfolio.investmentguruindia.com/investmentguruimages/upload/post/2023/05/c2be33084fde341933d8a70b360052a3.jpg)
Follow us Now on Telegram ! Get daily 10 - 12 important updates on Business, Finance and Investment. Join our Telegram Channel
https://t.me/InvestmentGuruIndiacom
Download Telegram App before Joining the Channel
Valuation and View – Management guides for fast normalcy in margins
Escorts Kubota (EKL) 4QFY23 results surprised positively where it exceeded our/street EBITDA/ Adj. PAT estimates by ~26%/22%. The entire beat is attributed to better than expected gross margins at 28.5% (est 26.2%, +300bp QoQ/ -140bp YoY). This led to ~24% QoQ growth in EBITDA at Rs2.35b (est/cons at Rs1.87b/Rs1.92b) with margins at 10.8% (est 8.7%, +240bp QoQ/ -270bp YoY). Tractors (71% EBIT contribution) ASP grew 1% YoY (+3.2% QoQ) at Rs628.9/unit with EBIT margins expanding ~160bp QoQ (-560bp YoY) at 9.9%. The management guided for fast normalcy in tractors EBIT margins to a normalized level of 14-15% towards end of FY24E, driven by further decline in RM expected, + product mix, recent price hikes and ongoing cost control measures. We think this would not be easy but challenging as well given low-mid single digit volume growth expected for the domestic tractor industry.
We believe, EKL is more vulnerable v/s peers as i) it derives >75% of its revenues from FES segment and ii) aggressive expansion plans by Sonalika, TAFE, John Deere, etc. to keep tight balance between market share and margins priorities. The valuations at 21x/17.4x FY24/25 do reflect anticipated market share expansion and synergies post Kubota integration. We believe, benefits arising out of Kubota JV to start reflecting meaningfully only over ~2 years. We raise FY24/25 EPS by 13.6%/5.7% to factor in sharper than expected RM decline. We maintain Neutral on the stock with TP of Rs2,001 (earlier Rs1,892). We continue to value co at 17x Mar-25 EPS. We build in revenue/EBITDA/PAT CAGR of 9%/32%/35% over FY23-25E.
Result Highlights – Better gross margins drive profitability
* Revenues declined 3.6% QoQ (+16.8% YoY) at Rs21.8b* (in-line) as Agri/railways revenues declined ~9%/~5% while construction equipment revenues grew 25.7% QoQ. Agri ASP grew 1% YoY (+3.2% QoQ) at Rs628.9k/unit.
* Gross margins came in better at 28.5%* (+300bp QoQ/ -140bp YoY) at 28.5% (est 26.2%). This led to beat on EBITDA margins at 10.8%* (+240bp QoQ/ -260bp YoY, est ~9%) with EBITDA at Rs2.35b (est Rs1.9b, -6.2% YoY/ +24% QoQ).
* Segmental EBIT margins – Agri at 9.9% (-10bp QoQ), Railway at 14% (+90bp QoQ), CE at 8.1% (+590bp QoQ).
* Co reported exceptional expense of Rs244m towards provision for impairment in Escorts crop solutions. Led by better operating performance, Adj.PAT grew 9.3% QoQ (-1% YoY) at Rs2b (est Rs1.7b).
* FY23 performance – Revenue/EBITAD/Adj. PAT grew 15.7%/-21.9%/-7.9%
To Read Complete Report & Disclaimer Click Here
Please refer disclaimer at https://yesinvest.in/privacy_policy_disclaimers
SEBI Registration number is INZ000185632
Above views are of the author and not of the website kindly read disclaimer
![](https://portfolio.investmentguruindia.com/uploads/news/insurance 123.jpg)
![](https://portfolio.investmentguruindia.com/uploads/news/Axis Securities Ltd.jpg)
![](https://portfolio.investmentguruindia.com/uploads/news/Wipro.jpg)
![](https://portfolio.investmentguruindia.com/uploads/news/2b1715f7e03b51b0ac9c014eb224fc1f.jpg)
![](https://portfolio.investmentguruindia.com/uploads/news/gdp22.jpg)
![](https://portfolio.investmentguruindia.com/uploads/news/Geojit Financial Services.jpg)
![](https://portfolio.investmentguruindia.com/uploads/news/Dollar retures 2.jpg)
![](https://portfolio.investmentguruindia.com/uploads/news/health22.jpg)
![](https://portfolio.investmentguruindia.com/uploads/news/Arvind Kapil, MD and CEO, Poonawalla Fincorp.jpg)
![](https://portfolio.investmentguruindia.com/uploads/news/stock8.jpg)