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Yes Securities Report
Escorts Kubota Ltd.'s Q2 FY25 results were weak led by first quarter of amalgamation of EKI and KAM. While CE/railways business performance was in-line, lower than expected margins in farm equipment segment led Ebitda margins at 10.8% (flat YoY/ -240 bp QoQ).
Margins expansion for the merged entity to likely be gradual given full benefits of localization etc. to only kick-in over two-three years. However, improved volume outlook on tractors, price hikes undertaken, and benign raw material should help margins expansion QoQ.
We believe, Escorts Kubota can surpass co guidance of mid-single digit industry volume growth for FY25E with sings of volume recovery in South/West markets (key markets for Kubota) to be supported by new launches in Escorts brand.
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 gradual. Co has indicated revision in MTPB targets, impacted by few factors such as delay in land acquisition for greenfield capacity, weak exports etc. We see Escorts Kubota's market share remain range bound.
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