Escorts Kubota’s record tractor sales in May lift the stock up

Escorts Kubota Limited Agri Machinery Business Division sold 9,167 tractors in May, its highest sales for the month, a growth of 8.9 percent against 8,421 units in the year-ago period

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Escorts Kubota rose about a percent on June 1 morning after the company said it recorded its highest-ever sales in May, even as tractor sales have been slowing for the industry.

Escorts Kubota Limited Agri Machinery Business Division sold 9,167 tractors in May, its highest sales for the month, registering a growth of 8.9 percent against 8,421 units in the year-ago period.

Domestic tractor sales in May 2023 were at 8,704 units,  up 13.5 percent from 7,667 in May 2022, the company said in an exchange filing.

At 10 am, the stock was trading at Rs 2,188 on BSE, up 0.7 percent, after rising to Rs 2,214 earlier.

“Overall, the macroeconomic factors and farmer sentiments remain positive, resulting in a positive sales trend across most geographies. Going forward, we expect the current momentum to continue in the near term led by normal rainfall forecast, adequate reservoir levels, better liquidity and consumer credit availability,” the company said.

Drop in exports remains a challenge for the industry. Escorts Kubota exported 463 tractors in May against 754 in the year-ago period.

Escorts Kubota has diversified business across three divisions—agri machinery, construction equipment and railway equipment.

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Analysts have a mixed view on the stock.

Those at BOB Capital believe that medium-term pain for the company will continue and thus have a “sell” rating with the target at Rs 1,749.

The company has benefitted from cost inflation tailwinds as gross margin expanded QoQ but a reversal of price trends in Q1FY24 has weakened the margin outlook, it said.

Axis Direct, however, has a “buy” rating with the target at Rs 2,310. Motilal Oswal is neutral on the stock with the target at Rs 1,900.

“Near-term demand outlook continues to remain positive. led by healthy agri sentiments,” Motilal Oswal said in a note. “This should be further benefitted by lower channel inventory and the company’s focus on market share gains. Hence we expect ~7 percent volume CAGR over FY23-25. However, high base of FY23, uncertain monsoon forecast for CY23 and the impact of implementation of TREM-4 (emission standard for tractors) norms for <50HP tractors (likely in FY25) would be the key monitorable.”

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