Escorts Kubota Q3 Results Review: Yes Securities Maintains 'Neutral' Stance, Lowers Target Price — Here's Why

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Yes Securities Report

Escorts Kubota Ltd. Q3 FY25 results were weak though reported numbers are not comparable as Railways division is shown as discontinued operations. While CE/RED business performance was in-line, lower than expected margins in FES led Ebitda margins at 11.4% (-50bp YoY/ +110bp QoQ, estimate 12.9%) continues to disappoint.

Margins expansion for the merged entity to likely be gradual given full benefits of localization etc. to only kick-in over one-two years. However, improved volume outlook on tractors, new launches and fading impact of higher discounting should help margins expansion QoQ.

We believe, Escorts can surpass co guidance of mid-single digit industry volume growth for FY25E with large part of inventory destocking done and early sings of volume stability in North markets (key markets for Escorts) to be supported by new launches in Farmtrac.

While we remain constructive on growth opportunities for merged entity in tractor, implements, components sourcing and exports to synergize only over mid-term, near term margin recovery to be only gradual. We see EKL’s market share remain range bound.

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