Anticipating a 6-7% decline in domestic tractor industry volume for FY24, the company braces for lackluster export markets and delays its US launch to FY26.
Escorts Kubota Ltd Q3FY24 Results: A Closer Look
Escorts Kubota Ltd reported Q3FY24 results that failed to meet expectations, leading broking firms to revise their earnings estimates. The company anticipates a 6-7% decline in domestic tractor industry volume for FY24, with export markets remaining lackluster, specifically due to concerns in Europe and a delayed US launch to FY26.
Revenue Performance and Market Analysis
The company’s agri machinery products segment, including tractors, contributed nearly 71% of the revenue in the nine months leading to December. However, in Q3, revenue in this segment fell by 3% year-on-year to ₹1,658 crore, primarily driven by a over 7% drop in tractor volume. The railway equipment segment experienced an 18% decline in revenue, while the construction equipment segment saw a notable 49% revenue growth. Despite this, overall revenue managed to grow by 2.5% year-on-year in Q3 to ₹2,291.4 crore.
Financial Outlook and Analyst Projections
Analysts at Nuvama Institutional Equities expressed caution regarding near-term weakness in tractor volumes, resulting in a reduction of FY24-26E earnings per share estimates by 1-4%. They also highlighted a challenging competitive landscape, potentially hindering market share improvement in the tractor segment for Escorts Kubota. Conversely, analysts at Kotak Institutional Equities anticipate sustained margin performance fueled by benign commodity prices and pricing improvements across segments.
Concerns and Cautious Approach
The company’s management expressed concerns about potential changes in emission norms and a decrease in infrastructure spending post the 2024 Lok Sabha election, notably in the construction equipment segment. Shareholders and prospective investors are advised to closely monitor the 2024 election and subsequent policy changes. Considering the uncertain outlook, adopting a cautious approach and closely observing Q4 results is recommended.
Future Prospects and Share Performance
Escorts Kubota’s merger with Kubota is scheduled for completion in Q4FY24. Despite shares rising by nearly 36% over the past year, they have experienced a 6% decline in 2024. The momentum of the shares will largely depend on future demand in the tractor segment.
In conclusion, Escorts Kubota’s Q3 performance underlines the challenges faced in both domestic and international markets, reinforcing the need for a prudent and watchful approach as the company navigates the evolving landscape.
