Escorts stock zooms 8% as Japan's Kubota to raise stake, make open offer

Japan-based Kubota invests Rs 1,874 crore to acquire 9.66 mn shares through preferential route at Rs 2,000 per share

Escorts was trading at a fresh all-time high after Japan-based Kubota Corporation acquired stake in the company.

According to a release issued by Escorts to the BSE, the company has raised Rs 1,872.74 crore by way of preferential issue of 96.64 lakh equity shares to Kubota at Rs 2,000 per share. "Kubota will also make an open offer to the public shareholders of Escorts to acquire up to 26 per cent of the share capital in accordance with SEBI Regulations," Escorts said. READ ABOUT IT HERE

The stock registered a all-time high at Rs 1,793, and was quoted at Rs 1,760 - up 8 per cent on the BSE. The counter had seen trades of around 4 lakh shares so far.

"Kubota takeover is positive for Escorts, as it will result in technology/new product support for Agri and Construction Equipment divisions. Exports can also receive a boost as a result of widening product portfolio and utilization of global Kubota distribution network. Open offer would be for 37 million shares. Assuming Nanda family does not participate, then minimum acceptance ratio can be 51%," said an analyst at a domestic brokerage.

Ace investor Rakesh Radheshyam Jhunjhunwala holds 4.75 per cent stake in Escorts as on September 30, 2021.

Escorts on Monday also announced that it will increase the prices of its tractors effective 21 November 2021. “Escorts Agri Machinery (EAM), division of Escorts shall be increasing the prices of its tractors effective from 21 November 2021,” Escorts said in announcement. The company further said that there has been a steady rise in commodity prices necessitating a price hike that will offset the impact of the continuing inflation. The increase in prices would vary across models and variants, it added.

Earlier in June 2021, Escorts announced that it will be increasing the prices of its tractors with effect from 1 July 2021.

According to analysts at Emkay Global Financial Services tractor outlook is subdued for October-March period (H2FY22) on account of a high base of last year. Rural sentiments have been temporarily affected by erratic rainfall in September 2021, leading to delays in harvesting. Going forward, sentiments should improve on the back of healthy Kharif crop output and expectations of good Rabi crop output due to high reservoir levels, the brokerage firm said.

Escorts is a potential acquisition target owing to a low promoter stake, large cash reserves ( around Rs 3,000 crore) and rising shareholder activism. The company can benefit from a takeover by a company like Kubota in terms of technology support, access to a global sales network and opportunity for component manufacturing. Kubota could benefit from gaining access to the Indian Tractor and CE markets, analysts said.