On Thursday, Ambit Capital initiated coverage on Escorts Kubota Ltd (ESCORTS:IN) with a Sell rating and a price target of INR 3,563.00. The firm's analysis suggests that while Escorts Kubota, the fourth-largest tractor manufacturer in India, has a significant presence in the central and northern markets, there may be challenges ahead.
Escorts Kubota has a market share of approximately 10.3% in the fiscal year 2024, excluding its partnership with Kubota. The company has nearly regained its peak market share of 11.6% in the fourth quarter of the fiscal year 2024. Escorts Kubota has set ambitious goals for the fiscal year 2028, which include substantial market share gains, a two to threefold increase in export contributions, and a 7-8 percentage point expansion in margins.
Despite the potential for some market share expansion, Ambit Capital sees a low probability of Escorts Kubota achieving its targeted market share due to strong brand loyalty in the tractor sector. Additionally, while exports to Kubota could aid in meeting these targets, they may result in lower profit margins.
The firm also notes that after a significant re-rating of the stock, the implied revenue compound annual growth rate (CAGR) of 16.3% over the estimated period from the fiscal year 2025 to 2035 is ambitious and appears to already incorporate most of the company's targets. The price target of INR 3,563 is based on a discounted cash flow (DCF) analysis and implies a multiple of 29.2 times the consensus earnings per share (EPS) for March 2026.
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