Escorts Kubota hits new high, gains 4% on strong Q1 results

Shares of Escorts Kubota hit a new high of Rs 2,666.85, gaining 4 per cent on the BSE in Wednesday’s intra-day trade in an otherwise weak market after the company reported a strong performance in April-June quarter (Q1FY24). The stock was trading higher for the eight straight day, surging 14 per cent during the period. In comparison, the S&P BSE Sensex was down 0.8 per cent at 65,951 at 10:35 AM.

For Q1FY24, Escorts Kubota reported highest-ever standalone profit of Rs 282.80 crore, up 91.8 per cent as against a profit of Rs 147.5 crore in a year ago quarter. On sequential basis, profit jumped 52.5 per cent from Rs 185.5 crore. Total operating income for the quarter grew 18 per cent year-on-year at Rs 2,328 crore with growth coming healthy in the railway as well as construction equipment space amidst flattish tractor sales volume.

Earnings before interest, taxes, depreciation, and amortization (EBITDA) margin improved 320 bps quarter-on-quarter and 400 bps YoY at 14 per cent. The margin expansion led by operating leverage, and softening in commodity prices, the company said.

The management has guided for low-mid single-digit tractor volume growth in FY24E and sustenance of EBITDA margin for the coming quarters.

The management said in the agri business, overall sentiments were mixed last quarter as markets with good rainfall and crop prices showed good momentum, and markets with a delayed monsoon had a slightly dampened demand.

Going forward, with further advancement of monsoon across the country, adequate reservoir levels, better liquidity, and consumer credit availability, the management expects the demand momentum to improve.

Construction business has done well and is poised well for further growth with government thrust and focus on faster execution of infrastructure projects. “The demand for construction machinery is still buoyant and post monsoon, we expect the momentum to further accelerate,” the management said.

Railway business, with innovative products and expanded portfolio is well aligned with growing requirements of rail transport both on domestic and international front and continues to grow.

According to Motilal Oswal Financial Services (MOFSL), near-term demand outlook continues to remain positive, led by healthy monsoon so far. This should be further benefitted by lower channel inventory and the company’s focus on market share gains.

Hence, the brokerage firm expects ~6 per cent volume CAGR over FY23-25. However, the impact of high base of FY23, reducing subsidies by state governments and the implementation of TREM-4 norms for <50HP tractors (likely in FY25) would be the key monitorables. Faster recovery in other businesses and a ramp-up in its partnership with Kubota would partially dilute the cyclical impact of the tractor industry, MOFSL said in its result update.

Technical View

Bias: Positive

Target: Rs 2,690; Rs 2,730; Rs 2,780

Support: Rs 2,610; Rs 2,560

Shares of Escorts have witnessed a gradual up move from lows of Rs 1,800-odd levels in late March. The stock has gained over 47 per cent in the last four months.

Presently, the stock trades firmly above all its key moving averages i.e. the 20-DMA (Daily Moving Average), 50-, 100- and 200-. The stock is also trading above the higher-end of the Bollinger Bands on the daily chart, indicating that the bias is likely to remain bullish as long as the stock trades above rs 2,610 level.

The price-to-moving averages action on the weekly chart too is positive, with bias likely to remain favourable as long as the stock sustains above Rs 2,560.

The monthly Fibonacci chart suggests that the stock could scale Rs 2,690 - Rs 2,730 - Rs 2,780 on the upside in August. On the downside, the stock could dip to Rs 2,440 - Rs 2,390.

(With inputs from Rex Cano)