Company Update - Escorts Kubota - ICICI Direct

Posted On : 2022-11-21 11:42:04( TIMEZONE : IST )

Company Update - Escorts Kubota - ICICI Direct

We recently attended Escorts Kubota's (EKL) analyst meet in Faridabad wherein the company revealed its mid-term business plan (MTBP)

- MTBP key highlights, FY28 targets: (i) aspiration to grow revenues to >2.5x of FY22 levels (i.e. ~Rs. 22,500+ crore in FY28E, implied CAGR of 16.5%+); (ii) increase share of exports from ~6.4% in FY22 to ~15-20% in FY28E; (iii) target EBITDA margins to mid-teens; (iv) RoCE at 25-30% and RoE>18%

- Within segments, agri segment is expected to grow by 2.5x; construction equipment is expected to grow by 2x; whereas railway division is expected to grow by 3x by FY28E riding on new products under development

- It also shared firm capital allocation strategy wherein EKL will invest up-to 5% of net profit for R&D, innovation for new technologies; cash return to shareholders in the form of dividend + buyback at up-to 40% of net profit

- On the cash application part, it envisages ~Rs. 3,500-4,000 crore as growth capex for MTBP for augmenting capacities including greenfield expansion, debt repayment at to be merged entity (~Rs. 400-500 crore), inorganic opportunities (start-up investments) and return of cash to shareholders

- We came impressed with cultural shift, which EKL is seeing imbibing the best practices at Kubota and leverage opportunities that it sees to cross sell as well as development of EKL as one of the sourcing hubs for Kubota

Key triggers for future price performance

- Incorporating the positives, we expect sales to grow at a CAGR of 14.4% over FY22-24E, with consequent operating margins seen at 12.0% by FY24

For details, click on the link below: Link to the report

Shares of Escorts Limited was last trading in BSE at Rs. 2031.70 as compared to the previous close of Rs. 2015.20. The total number of shares traded during the day was 32575 in over 2612 trades.

The stock hit an intraday high of Rs. 2038.40 and intraday low of 1966.55. The net turnover during the day was Rs. 65411283.00.

Source : Equity Bulls


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