Escorts Kubota: IIFL Investor Conference

15 Feb 2024 , 02:32 PM

Analysts of IIFL Capital Services hosted the management of Escorts Kubota at IIFL’s Enterprising Bharat – 15th Global Investors’ Conference. The current demand scenario in the tractor industry is slightly weak with soft retails and higher than normal inventory. Mgmt. focused on its long-term growth targets beyond the near-term slowdown. Company aspires to grow its top-line by 2.5x from FY22 levels. Share of exports would increase sharply to 15-20% of revenue vs current 7%. The increase in exports would be led by manufacturing of Kubota’s products for the global markets and leveraging Kubota network for sale of Escorts and Kubota products globally. Company aims to increase its tractor mkt-share to 16.5% (incl. Kubota brand) and attain mid-teen margins. Company also highlighted huge opportunities in spares business. Company is currently debt-free and shall continue to stay so. 

Near-term industry outlook is soft: 

Mgmt. expects tractor industry volumes to decline 6% YoY in FY24. The tractor cycle worsened due to erratic rainfall in 2023 and weak festive sales. Industry-level dealer inventory is high, which may need correction in coming months. FY25 outlook will depend on normalcy of monsoon in 2024. 

Aggressive growth targets across verticals: 

Company’s plan of scaling its revenue to 2.5x from FY22 levels would be achieved through 2-3x growth across all three segments. With Kubota’s technological expertise, company aspires to increase Tractors mkt share to 16.5% vs current 13% (Escorts + Kubota). Company plans to expand its dealership network from 1,500 to 2,000 touch-points. Mgmt. also plans to set up a financing entity to increase the availability of financing options for its customers. Construction equipment momentum is expected to continue and segment shall generate 2x revenues by FY28 (vs FY22). Railway would be the fastest growing segment, with a strong order-book (Rs 9bn) and many products in the pipe-line. 

Scaling exports by leveraging Kubota’s technology and Escorts’ value offerings: 

Exports is targeted to increase from 7% of revenue currently, to 15-20% by FY28. This would be through increased exports of Escorts products by leveraging Kubota’s global network. Escorts and Kubota will consolidate their global dealer network in FY25. Escorts will also serve as a manufacturing hub for Kubota’s spare-part needs (USD1bn opportunity in near-term).