No Plans to Sell Stake – Escorts

Update on the Indian Equity Market:

On Tuesday, NIFTY closed in the green at 17,503 (+0.5%). The top gainers in NIFTY50 were BHARTIARTL (+4.0%), JSWSTEEL (+4.0%), and ASIANPAINT (+4.0%). The top losers were BAJFINANCE (-2.6%), BAJAJFINSV (-2.6%), and TATAMOTORS (-1.8%). Sectoral gainers were METAL (3.3%), REALTY (2.4%), and MEDIA (2.3%). There were no sectoral losers for the day.

Excerpts of an interview with Mr. Nikhil Nanda, Chairman and Managing Director, Escorts with Economic Times dated 19th November 2021:

• Escorts has announced the onboarding of Japanese tractor maker Kubota as a joint promoter of the company along with the Nanda family. Kubota will infuse over Rs 94 bn into Escorts, including an open offer to its shareholders, to increase its stake to 53.8% becoming the majority shareholder of the company.
• This deal was the best partnership for the company, with the kind of ability and strength that Kubota already has as a global brand it is possible to bring the best in the world to India and use Escorts’ platform to serve the needs of the farming community globally.
• There’s no change in the stake of the promoter family, it’ll continue to stay the same, Mr. Nanda categorically denied media reports that claimed the Promoter family was selling its stake in Escorts. The family is absolutely honoured to have a chance to partner with Kubota and It looks forward to building this partnership between Kubota and Escorts.
• The focus of the promoter family was to create an institutionalised company that can survive the fluctuations many family-held companies go through over generational shifts. The company aspires to be a market leader but to achieve that growth trajectory institutionalising was the need of the hour.
• The partnership with Kubota is not a new one, the relationship started in 2018 with the announcement of a JV. This is just the next step of the partnership after the tremendous success that the company has witnessed over the past 3 years.
• With the common philosophy and the alignment of interest that the promoter family shares with Kubota, The Promoter family will become joint Promoters with Kubota and as a testament to the respect and mutual admiration, the promoter family will not hold a golden share in the company.

Asset Multiplier Comments

• Kubota is a Japanese tractor manufacturer which is one of the largest in the world, this partnership will help Escorts leverage the technological prowess of Kubota to provide best in class products.
• With Kubota’s global presence, India can become a launch pad of Escorts’ Tractors as it aims to aggressively expand its exports portfolio.

Consensus Estimate: (Source: market screener and Tikr.com websites)

• The closing price of Escorts was ₹ 1,803/- as of 23-November-2021.  It traded at 22x/20x/16x the consensus earnings estimate of ₹ 81/89/111 for FY22E/23E/24E respectively.
• The consensus price target is ₹ 1,766/- which trades at 16x the earnings estimate for FY23E of ₹ 111/-

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