Escorts Kubota Limited (EKL), one of India’s leading tractor manufacturers, is poised for strong growth in the coming years, according to a new research report by Sharekhan. EKL, formed after the merger of Escorts Limited and Kubota Corporation of Japan, will benefit significantly from synergies and integration of the two entities, said Sharekhan in its report.
Although the stock has already run up 60% in less than six months in line with the bull market seen in Indian mid-cap stocks, Sharekhan has turned positive on Escorts Kubota with a potential upside of 20% in its share price.
The research arm of the broking firm said EKL is likely to gain market share in India and globally, driven by new product launches, increased share of non-agriculture tractors, expanded global footprint due to Kubota’s distribution network, and its position as the exclusive manufacturer and distributor for Kubota in India.
Escorts Kubota currently has around 10% market share in the Indian tractor market, selling under the Powertrac and Farmtrac brands. It also exports tractors to Africa, South East Asia and other markets. The tractors segment contributes 75-80% of the company’s overall revenues.
Sharekhan noted that lack of captive financing support was impacting Escorts’ market share against competition. However, the recent move to set up a wholly owned NBFC (non-banking finance company) will support customer financing and boost tractor volumes. The favorable rural economy, expected growth in infrastructure spending and government agriculture schemes will also drive tractor demand, it said.
The brokerage firm expects Escorts Kubota’s earnings growth to be driven by revenue expansion in tractors, construction equipment and railways verticals. Price hikes, benign raw material costs and synergy benefits from Kubota alliance will improve margins and profitability, said Sharekhan.
Escorts Kubota’s railway segment has a strong order book of Rs 950 crore, providing revenue visibility. Higher infrastructure spending by the government will also boost demand for its construction equipment, as per the report.
Sharekhan said the Kubota partnership will give Escorts access to advanced global technology and R&D capabilities. This will help strengthen its product portfolio and enable the launch of new innovative products in India and globally.
Leveraging Kubota’s worldwide distribution network, Escorts can significantly grow exports and diversify its revenue streams. In FY23, 32% of Escorts’ exports were done through Kubota channels. The proposed merger of Kubota’s existing India units with Escorts will also expand the business.
“We believe shortening of the replacement cycle would support the tractor industry’s volume growth in the medium term. Given high finance penetration in the tractor industry, an in-house NBFC would help EKL in driving its sales performance,” Sharekhan said, maintaining a positive outlook.
However, the research firm cautioned that erratic monsoons, intensifying competition and any delay in synergy creation with Kubota pose downside risks for Escorts Kubota.
“We remain our positive view on the partnership of Kubota Corporation and erstwhile Escorts and believe EKL is likely to focus on synergizing and integrating its respective strengths. With the introduction of earnings estimates for FY2026, we turned positive on Escorts with a potential upside of 20% considering synergy benefits in collaboration with Kubota, focus on margin expansion, and traction in the railway segment.”
