Escorts extends fall; sheds 11% in 2 wks on weak Q3 operational performance

Shares of Escorts Kubota were down 4 per cent at Rs 2,945 on the BSE in Monday’s intra-day trade, thereby extending its fall after the company reported a weak operational performance for the quarter ended December 2024 (Q3FY25). 

 

In the past two weeks, the Escorts Kubota stock declined 11 per cent. In the past six months, it slipped 25 per cent, as compared to 9 per cent decline in the BSE Sensex. The stock had hit a 52-week low of Rs 2,670.75 on March 18, 2024.

 

For Q3FY25, Escorts Kubota reported 60 basis points (bps) year-on-year (YoY) fall in its earnings before interest, tax, depreciation, and amortisation (Ebitda) margin to 11.4 per cent due to an unfavorable mix and low ASP. While management remains optimistic about near-term demand and has completed channel inventory rationalization, regaining lost market share will be critical, according to analysts.

 

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The company posted a rise of 10 per cent in consolidated net profit YoY to Rs 320.64 crore as compared to Rs 290.51 crore. Its revenue for the quarter under review increased 7.8 per cent to Rs 2,940.02 crore as compared to Rs 110.34 crore a year ago. Ebitda for the third quarter stood at Rs 335.3 crore, up 3.6 per cent as against Rs 323.8 crore in the corresponding quarter a year ago. The company discontinued the railway division following its recent slump sale to Sona Comstar.

 

Escorts Kubota is primarily engaged in the business of manufacturing of agricultural tractors, engines for agricultural tractors, construction, earth moving and material handling equipment. It also trades in oils & lubricants, implements, trailers, tractors, compressor accessories and spares, construction, earth moving and material handling equipment.

 

According to the management, tractor Industry is expected to grow by 14-15 per cent in Q4FY25, with Q1FY26 also expected to see healthy growth given positive rural sentiment. The FY26 outlook depends on the monsoon, which remains a key demand driver.

 

Demand for domestic tractors is improving, with FY25 volumes expected to grow by 6-7 per cent, driven by a healthy monsoon, favorable crop prices, and government support. While management remains optimistic about near-term demand and has completed channel inventory rationalization, regaining lost market share will be critical, said Motilal Oswal Financial Services in the result update.

 

Retail market share remains higher than wholesale market share due to inventory rationalization, now at four weeks (from six weeks earlier). The company’s market share was impacted by higher industry growth in non-core markets (South, West, Chhattisgarh, Odisha, Jharkhand). Market share is expected to improve over the next 3-6 months, supported by product interventions and channel expansion, the brokerage firm said with ‘Neutral’ rating on the stock.

 

Meanwhile, Emkay Global Financial Services maintained its 'Buy' rating on Escorts Kubota on expectations of better performance ahead.

 

The management guided to a robust domestic tractor industry outlook for Q4 (~15 per cent YoY growth). This, coupled with management guidance on corrective actions for channel inventory/dealer receivables being largely over, with several new product initiatives (Pro Maxx Series tractors under the FarmTrac brand) and scale-up in the captive financing arm, would drive market-share improvement in FY26 (particularly from H2), analysts said.

 

Additionally, component exports to Kubota as part of the parent’s global sourcing diversification (scale-up in FY26E; Kubota’s annual global sourcing is ~$10-12bn) would act as a long-term catalyst for the stock as well, apart from optionality around domestic tractor industry market share gains, the brokerage firm said.

 

Analysts at Anand Rathi Share and Stock Brokers are enthused about the company as they believe FY25 would bring a ramp-up in its Vision 2028 execution and a turnaround in tractors. Its merger with Kubota, strong tractor cycle, new products & platforms, and recovery in exports will be positive for the company. Key Vision 2028 strategies: new platforms for domestic/exports, component/R&D services exports, operating captive finance and ramping up plans for other segments, the brokerage firm said.