Escorts Kubota Ltd Quarterly Results Q3 FY 25 stock analysis

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Sector Outlook: Neutral

Margin pressure persists amidst revenue growth

Escorts Kubota Ltd. (EKL) reported revenue of Rs. 29,480 million, growing 8.1% YoY and 29.5% QoQ, driven by strong domestic demand after the monsoon and festive season. Gross profit rose to Rs. 7,953 million, but margins fell to 27.0% due to higher raw material costs and inventory changes. EBITDA stood at Rs. 3,327 million (up 2.2% YoY / 44.7% QoQ), with margins at 11.3%. The EBITDA margin declined YoY due to higher imports in the agri-solution business. Net profit was Rs. 2,879 million, up 6.5% YoY but down 4.1% QoQ, with a 9.8% margin. Lower profits compared to last quarter were due to higher non-operational income and lower tax benefits in Q2. Farm equipment sales reached 32,556 units, growing 4.5% YoY / 37.0% QoQ, mainly due to strong domestic demand from the Kharif harvest and festival season, though exports remained weak. However, export growth is expected to improve with Kubota orders. The construction equipment segment performed well, with 1,989 units sold, down 0.9% YoY but up 51.3% QoQ.

Key Concall Highlights

Business Highlights

Exports: Sales to the Kubota Global Network made up 27% of total exports for Escorts Kubota Limited (EKL) this quarter.

Non-Tractor Revenue: Revenue from agri machinery, engines, and spare parts contributed 21% of total agri machinery revenue, up from 19% last year and 18% in the previous quarter.

Agri Machinery Revenue: Grew 9.4% YoY to Rs. 2,417 crore from Rs. 2,209 crore last year. EBIT margin dropped to 10.4% from 12.1%.

Construction Equipment Revenue: Increased 4.1% YoY to Rs. 516 crore from Rs. 495 crore last year. EBIT margin rose to 11% from 8.1%.

Railway Equipment Business:

Now classified as discontinued operations.

Revenue dropped 2.2% YoY to Rs. 200 crore from Rs. 205 crore.

Order book at Rs. 890 crore, excluding a Rs. 380 crore BMBS order, which is temporarily on hold.

Demand Outlook

The Construction Equipment industry may see a short-term decline due to BS5 transition price increases.

Mid- to long-term growth remains positive, supported by government infrastructure projects like roads, smart cities, and railways.

New Launches

Launched Stage V emission-compliant products.

Introduced entry-level Hydra Cranes and the BLX75 Backhoe Loader under the E. Kubota brand.

Launched PROMAXX series tractors (37-47 HP) under the Farmtrac brand.

Valuation and Outlook

Escorts showed strong revenue growth, but profits were impacted by higher raw material costs, festive discounts, and lower use of local parts. The agri-machinery business underperformed due to a weaker presence in high-growth regions and a larger share of low-margin products. Despite these challenges, the company remains optimistic, expecting strong growth in Q4 with higher exports to Kubota’s European market and better inventory management. The integration with Kubota entities will strengthen financing options, but the full benefits will be seen from H2FY26. However, since the company is prioritizing market share over profit margins, margin pressure may continue with slow improvements. Growth in key regions is still a challenge, but the new PROMAXX series targets markets in Maharashtra, Gujarat, Chhattisgarh, and Odisha. While near-term difficulties persist, strategic efforts in product launches, market expansion, and dealer improvements should boost performance in the medium term, though market share and margin growth will take time.