Buy Stock: Buy this major tractor stock for a 22% increase in 1 year, according to ICICI Direct
Escorts is the fourth largest tractor manufacturing entity in the country with an 11.3 percent market share. The company also caters to the segment of national railways and construction equipment. Speaking of its sales mix in FY21, tractors represent the major component of sales.
Kubota Escort Transaction:
The company will issue additional shares through the preferential allotment route to the Japanese tractor company Kubota Corporation at a price of Rs. 2000 per share with an inflow of around Rs. 1873 crore.
In the transaction, Kubota’s stake in Escorts will increase from 10% to 16.4% and the company will become a co-promoter of Escorts.
There is a proposal to change the name of the company to Escorts Kubota Ltd.
It is planned to merge all current JVs.
The Nanda family will retain their participation and Mr. Nikhil Nanda will continue to be the CMD.
Brokerage advice on escorts to investors
The script over the past 5 years has zoomed 6 times from levels of around Rs. 300 in November 2016, significantly outperforming the Nifty Auto Index. “We retain BUY on Escorts with Kubota now a co-promoter with expectations of improved product offerings and increased global sourcing from India,” the brokerage said.
Target price and evaluation: The brokerage firm values escorts at a revised TP of Rs based on SOTP. 2,200 (23x P / E on base EPS FY23E, 15% discount on own shares; previous TP- Rs. 1,900)
Main triggers for future price performance:
• New product launches in the field of agricultural mechanization (extractors).
• Optimal use of excess cash on b / s, currently close to Rs. 5,000 crore.
• Expect a 13% CAGR in tractor revenue in fiscal year 21-23E.
• Growth in construction equipment and railways will be faster in a context of expected recovery in economic activity and positive outlook for user segments.
Alternative stock idea:
Aside from Escorts, the brokerage in its automotive OEM coverage is bullish on M&M. The company recommends buying M&M shares for a target price of Rs. 1,125, up potential 21.75% from the last traded price of Rs. 923.7 per share. The brokerage firm highlights the positive points of M&M such as prudent capital allocation, UV differentiation and EV proactivity.
The above stock was selected in the ICICI Direct brokerage report. Investing in stocks presents a risk of financial loss. Investors should therefore exercise caution. Greynium Information Technologies, the author and the brokerage are not responsible for any losses caused as a result of decisions based on the article.