Emkay Global Financial has given Buy recommendation for Escorts with a target price of Rs. 2140 in its research report issued on Nov 20, 2021

Emkay Global Financial’s report on Escorts

On Thursday (18th Nov), Escorts’ board announced Kubota (a 9% shareholder) will acquire 46.9mn additional shares through preferential allotment plus open offer, and join the Nandas as a co-promoter. At Rs2,000/share (a 23% premium to Wednesday’s closing price), the total deal value is Rs94bn, implying 22x NTM core P/E. After a successful open offer, Kubota’s shareholding may increase to 53.5% (59.1mn shares), assuming the cancellation of 33.7mn treasury stock. Kubota’s takeover will substantially improve Escorts’ medium-term growth outlook, based on: 1) localization of existing tractor imports currently done by Kubota’s India JV; 2) leveraging Escorts for global component supplies to support Kubota’s global sales; 3) technology support in construction equipment, farm implements and high-end tractors. We raise FY23E/24E EPS by 5%/7% (without factoring in the dilution from Kubota JV buyouts/consolidation), and now forecast Revenue/EPS CAGRs of 12%/17% in FY22-24E vs. 7%/12% previously.


We upgrade ESC to a Buy with a Dec’22 TP of Rs2,140 (Rs1,600 earlier). We value core at 22x P/E (16x P/E earlier) and (post-deal) cash at Rs423/share (0.80x book); core P/E is at a 10% premium to fair P/E (backed by DCF), and captures potential upside from farm implements in India, and higher tractor exports.

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