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Motilal Oswal Report
The outlook for the tractor industry has further improved after GST rate cuts, and the brokerage now expects the industry to post a healthy 20% volume growth in FY26E. However, market share loss for Escorts Kubota Ltd. over the last several quarters remains a key concern.
While synergies between Escorts and Kubota are significant, they will likely materialize over the medium to long term. The stock is trading at ~30.5x/27.1x FY27E/28E earnings per share, which is at a significant premium to its 10-year average of ~20x, mainly due to the Kubota parentage.
Given that most of the positives seem to have already been factored into valuations, Motilal Oswal reiterate Neutral rating on the stock with a target price of Rs 3,836, based on ~28x Dec'27E earnings per share.
Escorts Q3 FY26 Results
- Escorts' Q3 standalone revenue came in line at Rs 3,260 crore (estimate ~Rs 3,200 crore), growing 11.1% YoY (+17.4% QoQ). This was led by a 13.5% YoY increase in tractor volumes.
- Ebitda margin improved 210bp YoY to 13.5% (+40bp QoQ), in line with brokerage's estimate of 13.6%.
- While the tractor segment margin improved 320bp YoY over a low base to 13.6% (in-line), the construction equipment segment's margin remained under pressure. It was down 400bp YoY to 6.0% (in line).
- Led by strong revenue growth and healthy margin improvement, Ebitda grew 31% YoY to Rs 440 crore (in line).
- Other income at Rs 150 crore was higher than estimate.
- The company recorded a one-time exceptional expense of Rs 52.5 lakh due to changes in the labor codes.
- Adjusted for this expense, PAT came in line with our estimate at Rs 400 crore, up 38.4% YoY over a low base.
- In 9M FY26, revenue/Ebitda/PAT rose 9.9%/27.3%/20.8% YoY to Rs 8,520 crore/ Rs 1,130 crore/Rs 1,040 crore.
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