Neutral Escorts Ltd For Target Rs.1,575 - Motilal Oswal Financial Services Ltd
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MTBP focuses on three key objectives.
ESCORTS unveiled its medium term business plan (MTBP) with three objectives:
* Kubota to become the numero uno global Tractor manufacturer in terms of volumes.
* Expand revenue and improve profitability in Kubota.
* Promotion of farm mechanization globally
To attain these objectives:
* Establish a R&D center for designing new platforms of value innovative basic machinery up to 120HP.
* By leveraging ESCORTS’ frugal manufacturing capability and Kubota’s global quality system, it will manufacture competitive products at aggressive prices, enabling Kubota to compete against brands exported from India and Korea. This will help Kubota increase volumes and market share in the EU and US markets. India will emerge the global manufacturing hub for Kubota. It will also supply India made components to Kubota globally.
* Expand its existing business by leveraging on three brands (Farmtrac, Powertrac, and Kubota) to cater to all customer segments.
* Contribution to Kubota’s global procurement, given its concerns on sourcing from China, which ESCORTS can aid by shifting sourcing to India.
* As in India, customers in Latin America and Africa are looking for heavy-duty Tractors that can tow heavy loads at a lower price than Kubota's specialty of lightweight and compact products.
* This will allow Kubota to compete at lower prices than it does at present, and expand its volume and share in the European and American markets. By becoming Kubota's global production base, ESCORTS will be able to take advantage of its low-price cost structure (thus, ensuring higher profitability), and be able to supply Indian-made parts to factories across the globe.
* Valuation and view: The MTBP extends to areas discussed in the past, with the only addition being the setting-up of an R&D center in India. While these are steps in the right direction, some of these drivers will take time to reflect in its financials. We are not yet sure about the role ESCORTS will play in the sourcing of components (trading, manufacturing, or just facilitating). We await further details on investments, timelines, and targets, if any.
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