Escorts Kubota Ltd Quarterly Results Q1 FY 26 stock analysis

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Sector Outlook: Neutral

Demand softness dents sales; One offs drive profitability

Escorts Kubota Limited (EKL) reported a muted topline performance in Q1FY26, with revenue declining 2.9% YoY to Rs. 25,001 million, falling short of street estimates of Rs. 26,048 million. The decline was largely driven by tepid volume performance in the domestic market and underperformance relative to the industry. Despite softness in the topline, a healthy uptick in profitability was observed. Gross profit rose 2.6% YoY to Rs. 7,719 million, with gross margin (GM) expanded 166 bps YoY to 30.9% (up 24 bps QoQ). The improvement in GM was on account of lower COGS, aided by inventory stocking. EBITDA stood at Rs. 3,214 million, up 2.0% YoY and 11.8% QoQ, marginally below estimates of Rs. 3,260 million, while Operating Margin (OPM) improved to 12.9%, expanding 61 bps YoY and 110 bps QoQ – reflecting healthy operating leverage in the Agriculture Machinery segment and lower other expenses. Reported PAT surged 39.8% YoY to Rs. 3,695 million, significantly beating estimates of Rs. 2,852 million. The jump was driven by a modest uptick in other income and a significant contribution from an exceptional item of Rs. 760 million, arising from a land sale. Excluding this, PAT remained in line with estimates. The one-time impact of profit from discontinued operations of Rs. 10,280 million is excluded, which pertains to the slump sale of its RED business. On the volume front, Tractor sales stood at 30,581 units, showing a modest annual growth of 0.7% and a strong sequential rebound of 14.8%, aided by improved rural demand and seasonal trends. Construction Equipment volumes came in at 1,055 units, witnessing a sharp decline of 23.7% YoY and 38.6% QoQ, reflecting subdued demand in the segment.

Valuation and Outlook

The company delivered a mixed performance in Q1FY26, with the topline coming in below expectations due to tepid domestic volumes and underperformance relative to the industry. However, the quarter was marked by a resilient operating performance, with gross and EBITDA margins expanding on the back of favourable raw material costs and better cost control, particularly in the Agriculture Machinery segment. The sharp jump in PAT was aided by exceptional gains, though core profitability remained broadly in line with expectations. While Q1 saw muted revenue performance, we believe Escorts Kubota is well-placed for a gradual recovery in H2FY26, supported by a strong pipeline of new launches across brands (Promaxx, MU Series, Wetland). These are expected to aid market share gains, particularly in under-penetrated southern and eastern markets. Export momentum remains healthy, with management targeting 25–30% YoY growth in FY26 and a medium-term contribution of 15% to total revenue, aided by rising integration with Kubota’s global network. The Construction Equipment segment is expected to rebound post-monsoon as emission-related transition impacts subside and government-led infrastructure activity picks up. While input costs are firming up, with the impact likely to be felt from Q2 onwards, and the drag from the unfavourable regional mix expected to persist in the near term, management has retained its EBITDA margin guidance of 12–12.5% for FY26, supported by new product launches, cost discipline, and operating leverage. Overall, EKL remains well-positioned, with improving fundamentals and medium-term levers for profitable growth in place.

Key concall Highlights

Escorts reported flat YoY tractor volumes in Q1FY26, underperforming the industry growth of 9.2% due to weaker presence in high-growth South and East regions. Construction Equipment (CE) volumes declined 24% YoY, impacted by pre-BSV inventory clearance and weak demand. Management maintains mid-to-high single-digit tractor industry growth guidance for FY26, with Q2 likely to remain soft due to a high base, while H2 performance hinges on festive demand and monsoon spread. The CE segment is expected to recover in H2FY26, aided by infrastructure investments and emission norm transitions. Product-wise, the Promaxx (Farmtrac) and Kubota MU series have been launched, while Powertrac’s Wetland series is due by Q2-end. These are expected to drive market share gains, especially in Southern and Eastern India. Gross margins improved on lower COGS and inventory benefits. Despite rising metal costs in Q2, EBITDA margins are guided at 12–12.5%. FY26 capex is pegged at ₹350–400 crore, excluding the UP greenfield project, which is delayed to FY27.