Escorts Kubota Ltd. Q4FY23 Result Update

Escorts Kubota Limited is one of India’s leading engineering conglomerates operating in the high-growth sectors of agri-machinery, construction & material handling equipment, railway equipment and auto components.

With over 1 million tractors in the fields in India, 16,000 construction and material handling equipment and 5 million auto-components manufactured till date, Escorts is leveraging its engineering expertise and positioning as a change agent in the agriculture, construction equipment and automotive sectors.

Quarterly Result Highlights

Escorts Kubota Limited (EKL) reported mixed numbers in Q4FY23 due to weak demand in the tractor sector. Consolidated revenue declined 3.4% compared to the previous quarter but increased by 17.4% compared to the previous year, reaching Rs. 2,215 crores.

EBITDA grew to Rs. 233 crores, mainly due to price hikes, lower commodity prices, and higher sales of 40HP+ tractors. The PAT increased by 19.7% compared to the previous quarter, reaching Rs. 216.5 crores.

Tractor sales EBIT margin contracted YoY due to increased raw material prices. Export sales outperformed the industry, growing by 11.7% in FY23. The construction equipment segment showed growth in Q4FY23, with improved EBIT margin.

Valuation and Outlook

The tractor segment is expected to have a positive demand outlook in the near term, driven by improved rural sentiment and increased availability of financing. Escorts is anticipated to experience higher growth than the sector, benefiting from its collaboration with Kubota and new export opportunities.

The construction equipment segment has also improved due to the reopening of the economy and increased government infrastructure spending. The renewable energy business shows promise with product commercialization and a strong order book. Overall, the company’s profitability is expected to improve due to lower raw material costs, a premium product mix, increased exports, and effective pricing strategies.

Key Concall Highlights

Tractor segment:

1. The tractor industry is expected to grow mid-single-digit in FY24, with an increasing use of tractors for non-agricultural purposes.
2. Market share for Escorts increased to 10.9% but has not fully recovered from pre-pandemic levels.
3. Record-high exports, with around 30% of total exports through the Kubota channel, expected to reach around 40%.
4. Tractor EBIT margin is projected to reach 14-15% by Q4FY24, driven by higher MSPs, improved product mix, and cost management.
5. Capacity expansion planned to increase total capacity to 300k units per annum.
6. No price hikes are anticipated in the near future.

Construction Equipment Segment:

1. Expected to grow by 10-12% in FY24 with expanding profit margins due to cost savings and operational leverage.

Railway Equipment Segment:

1. Anticipated double-digit growth in FY24, driven by new products and exports.
2. The order book at March 2023 was Rs. 1,050 crores.
3. Margins expected to improve further with localization benefits on upcoming products by FY25