ICICI Direct has given Buy recommendation for Escorts recommended buy rating on the stock with a target price of Rs 2200 in its research repo with a target price of Rs. 2200 in its research report issued on Nov 19, 2021
ICICI Direct’s research report on Escorts
Escorts is India’s fourth largest tractor maker (11.3% FY21 market share) and also serves the domestic construction equipment, railways space. FY21 sales mix – tractors 82%, construction equipment 11%, railways 7%. Past five year’s CAGR: 44.9%, 59.8% in EBITDA, PAT; cash positive b/s. Escorts to issue 93.64 lakh equity shares via preferential allotment to Kubota at a price of ₹2,000/share with total inflow pegged at ₹1873 crore. Kubota’s shareholding in Escorts to increase from 10% to 16.4%. Kubota to launch open offer for minority shareholders of Escorts at ₹2000/share. Kubota will now be a joint promoter of the company. Company name proposed to be changed to Escorts Kubota Ltd. All existing JV’s proposed to be merged, thereby simplifying the structure. Nanda family to retain its holding, Mr. Nikhil Nanda to continue as CMD.
We retain BUY on Escorts with Kubota now a co-promoter with expectations of enhanced product offerings and increased global sourcing from India. We value Escorts at revised SOTP-based TP of Rs 2,200 (23x P/E on core FY23E EPS, 15% discount on treasury shares; previous TP Rs 1,900).