Two different brokerages have two completely different views on Escorts Kubota after its second-quarter earnings, with concerns over weakening tractor demand and pressure on profitability weighing on the near-term outlook. While JPMorgan expects industry weakness to persist, Kotak Institutional Equities sees opportunities for the company to gain market share and expand its business beyond tractors.
Key Results Highlights
- Net profit down 20.6% to Rs 255 crore versus Rs 321 crore
- Revenue up 16.3% to Rs 3,231 crore versus Rs 2,777 crore
- Ebitda down 19.5% to Rs 292 crore versus Rs 363 crore
- Margin at 9.1% versus 13.1%
What Brokerages Said
JPMorgan — Neutral
JPMorgan has maintained its Neutral rating on Escorts Kubota but lowered its target price to Rs 2,770 from Rs 3,400. The brokerage is concerned about the changing outlook for the tractor industry, particularly after management cuts its FY27 growth expectation from mid-single-digit growth to a low-single-digit decline.
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The brokerage also expects demand to weaken further in the second half of FY27, with the possibility of a double-digit decline due to the impact of El Niño and a high base of comparison, which could further make recovery difficult.
Rising commodity costs are also likely to put pressure on the company's margins. However, demand for construction equipment remains relatively supportive, helped by continued infrastructure spending.
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Kotak Equities — Buy
Kotak has upgraded Escorts Kubota to Buy from Add, but cuts the target price to Rs 3,100 from Rs 3,450. The brokerage believes the company can gain market share in the tractor business through new product launches and a wider dealer network. Its stronger presence in North and Central India could also help it attract more customers.
Kotak also sees growth opportunities beyond tractors. The construction equipment business, along with its expansion into spare parts, engines, and agricultural solutions, could support the company's growth over the coming years.
Having said that, the brokerage has reduced its FY27-29 Ebitda estimates by 4% to 18% to account for near-term challenges; it expects profitability to improve gradually from CY2027.
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