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Target: ₹1,783
CMP: ₹2,015.20
Escorts Kobota’s Q2-FY23 revenue grew 13 per cent year-on-year, driven by 12.5 per cent volume growth in the tractor segment. However, sales from the construction equipment segment was down 14.6 per cent y-o-y.
We expect the volumes to increase due to the government’s push in infrastructure. In railway, tendering has picked up and the current order book stands at ₹900 crore.
EBITDA margin came in below our expectations at 8 per cent due to inflation, elevated commodity prices and increase in other costs. In the last 3-4 quarters, the commodity cost increased by about 35 per cent and the full cost benefit is not achieved, despite a 2 per cent price hike, due to industry pressure. However, the company’s strategic initiative with Kubota for export will drive growth in the long term for higher HP category. The company also outlined a capital expenditure of ₹350-400 crore this financial year.
Overall, rural sentiments are positive because of a normal monsoon and high crop yield. However, intense competition in the low HP tractor, higher discounts, inflation and limited government subsidies for FY23 have led to deferring certain capex for the current fiscal. On a one-year forward, the stock is trading at its all-time high of 26x. H
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