Escorts recently announced that it will issue issue 93.64 lakh equity shares via preferential allotment to its Japanese partner Kubota at a price of ₹2,000 per share with total inflow pegged at ₹1,873 crore. Escorts is India’s fourth largest tractor maker (11.3% FY21 market share) and also serves the domestic construction equipment, railways space.
The share price of Escorts has grown 6x over last five years from around ₹300 levels in November 2016, vastly outperforming Nifty Auto Index. ICICI Securities has retained its Buy rating on Escorts with Kubota now a co-promoter with expectations of enhanced product offerings and increased global sourcing from India.
Brokerage and research firm is bullish on the stock post the announcement of Kubota’s planned stake increase in Escorts and has a target price of ₹2,200 per share with the time horizon of twelve months.
Kubota’s shareholding in Escorts to increase from 10% to 16.4%. Kubota to launch open offer for minority shareholders of Escorts at ₹2000/share and will now be a joint promoter of the company. All existing JV’s proposed to be merged, thereby simplifying the structure whereas Nanda family to retain its holding and Nikhil Nanda will continue as CMD of the company.
The company’s new product launches in the farm mechanisation side (ex-tractors), optimum utilisation of surplus cash on b/s (now nearly at ₹5,000 crore), expctations of around 13% tractor revenue CAGR over FY21-23E (5.5% volume CAGR) and construction equipment, railways growth to be faster amid expected pickup in economic activity and positive outlook for user segments could act as key triggers for future price performance, as per the brokerage.
As per BSE shareholding pattern, Indian ace investor and stock market trader Rakesh Jhunjhunwala holds 4.75% stake in Escorts as of September 2021.
The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.
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