Friday saw an upgrade for Escorts (NS:ESCO) Kubota Ltd (ESCORTS:IN) stock by CLSA, shifting from an 'Underperform' rating to 'Hold'. The firm also raised the price target to INR3,775.00 from INR2,439.00. This adjustment follows the completion of the merger between Escorts Kubota India Private Limited and Kubota Agricultural Machinery India Private Limited, now unified under the Escorts Kubota banner.
The merger's completion has brought about significant changes for the company. Although the Ebitda margin for the merged entity was reported at a modest 10.8%, due to the high proportion of imported components for Kubota, the merger has added an annual revenue of approximately Rs20 billion, which is now Ebitda breakeven. The company has indicated an expectation of improved profitability through increased local production and has set a goal for a mid-teen Ebitda margin over the long term.
The company's outlook is optimistic with a forecast for domestic tractor volume recovery post-FY25, supported by favorable reservoir levels and a lower performance base from FY23 to FY25. CLSA anticipates a 12% growth in industry tractor volume for FY26/27 and expects Escorts to outpace the industry with a 13% growth. These projections are believed to be largely factored into the current stock valuation.
While the firm has slightly increased its FY25CL earnings projections by 2%, it has made a modest reduction of 1% to the FY26/27CL earnings forecasts. This adjustment is attributed to the divestment of the railway equipment division to Sona. The merger and its implications on the company's financials are now key focal points for investors monitoring Escorts Kubota's performance in the market.
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