Shares of Escorts Kubota, one of India's top engineering companies, have experienced a tremendous increase in value over the past decade. During this period, the shares have soared from ₹77 apiece to ₹2579.75, generating a whopping return of ₹3250%.
Impressively, out of last 09 years, the stock finished six years in green, delivering a multi-bagger return of 167% in CY17, and even during the first wave of the pandemic, the stock managed to deliver a fabulous return of 100%. Further, it has produced 20.5% return in the current year so far.
Escorts Kubota is a leading engineering conglomerate operating in Agri-machinery, Construction & Material Handling Equipment and Railway Equipment. It is engaged in the manufacturing of agricultural tractors, engines for agricultural tractors, material handling, Road compaction and Earth Moving Equipment and Brake system, Couplers, Suspension system, Friction & rubber Products for railway systems.
On August 01, the company reported a 16% YoY surge in revenue to ₹2,327.7 crore for Q1FY24, driven by higher price realisation in Agri and Construction Equipment and better-than-expected growth in Railway Equipment.
The revenue from agri machinery products went up by 4.5% YoY to ₹1,666.8 crore, while the revenue from Construction improved by 46.3% YoY to ₹360.1 crore, and Railway equipment witnessed a revenue growth of 71.8% YoY to ₹297.7 crore.
The company’s EBITDA stood at ₹331 crore, up 63% YoY. EBITDA Margins were up 400 bps YoY to 14%, mainly on account of the full impact of the price hikes taken in Q4FY23, commodity softening, cost reduction efforts, and operating leverage.
The consolidated profit after tax jumped 106% YoY to ₹290 crore due to higher EBITDA and other income, said brokerage firm Axis Securities.
In Q1FY24, Escorts Limited reported its total tractor sales volume at 26,582 units, marking a 1% decline compared to the previous year but reflecting a 7% increase over the previous quarter.
Additionally, in the same quarter, the company's total construction equipment sales volume reached 1,373 units, representing a 42% YoY growth, although it experienced a 10% decrease from the previous quarter.
Looking ahead, the company forecasts the demand momentum for agri business to improve with the advancement of monsoons across the country, adequate water reservoir levels, better liquidity, and consumer credit availability.
Axis Securities said the construction business is poised for further growth with the government’s thrust and focus on faster execution of infrastructure projects. It expects the demand to accelerate post-monsoon season. The railway business is expected to grow in double digits, with an order book of over ₹950 at the end of June 2023.
EBITDA margins for all segments are expected to improve further owing to operating leverage and improvement in the product mix, it said.
The brokerage has maintained its 'buy' rating on the stock, revising its target price higher to ₹2,900 apiece from an earlier price of ₹2,310, valuing the company at 22x Jun 25E EPS (earlier 21x FY25 EPS). This new target price signals an upside potential of 12.50% from the stock's latest closing price of ₹2579.75 apiece.
19 analysts polled by MintGenie on average have a 'sell' call on the stock.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie.
