Escorts Kubota

Escorts Kubota reported a strong Q3 FY25 with consolidated revenue from continuing operations growing 8.1% YoY to INR 2,948 crores. Consolidated EBITDA stood at INR 332.8 crores, achieving a margin of 11.3%. Net profit from continuing operations increased 6.5% YoY to INR 287.9 crores. Standalone figures also showed robust growth, with operating revenue up 8.5% to INR 2,935.4 crores and net profit (including discontinued operations) up 8.5% to INR 323.2 crores, resulting in an EPS of INR 29.39.

The Agri Machinery Products segment revenue increased 9.4% YoY to INR 2,416.6 crores. However, the EBIT margin for this segment declined to 10.4% from 12.1% in the corresponding quarter, primarily due to a higher proportion of traded items like harvesters, which are currently imported and carry lower margins. To address product gaps and improve market share, especially in western markets, the company recently launched the 'Promaxx series' under the Farmtrac brand, targeting the 30-50 HP mass segment.

The Construction Equipment segment recorded a 4.1% YoY revenue growth, reaching INR 515.7 crores, and significantly improved its EBIT margin to 11.0% from 8.1% YoY. The industry transitioned to BS-V emission norms from January 2025, leading to price escalations of 5-10% for customers. Management anticipates a temporary volume impact due to these price increases and expects a 'flattish' profitability year for FY26 in this segment, as full cost recovery remains challenging against prevailing rental rates.

Escorts Kubota's domestic tractor market share in Q3 FY25 was 11.8%. Management noted that the geographic growth of the industry was unfavorable for EKL, with stronger growth observed in non-EKL dominant markets. The company is strategically focusing on regaining market share in its traditional strongholds of North and West, which collectively account for 72-73% of the total industry, while also working to cover 'white spaces' in high-growth opportunity markets like Chhattisgarh, Odisha, and Jharkhand.

The Board approved an interim dividend of INR 10 per equity share. A significant land parcel of over 33,000 square yards, adjacent to the Railway Equipment Business Division, was approved for sale to Sona Comstar for INR 110 crores, with the spare parts division to be relocated. The company is also progressing with its new Greenfield plant, having submitted an Expression of Interest to the UP government and awaiting the completion of land acquisition by the government.

Exports to the Kubota global network constituted approximately 27% of the total export volume in Q3 FY25. Management expects robust double-digit export growth of 20-25% plus for FY26, driven by increasing sales to Kubota, particularly in Europe. Component exports are also anticipated to pick up from next year, with targets set for the sourcing team, potentially exceeding the current INR 250 crores annual run rate as Kubota's global demand increases.

The company observed a notable 350 bps gross margin change Q-on-Q, attributed to three factors: inventory buildup and better overhead absorption in Q2, commodity inflation in Q3 (expected to soften in Q4), and higher discounting during the festival season. Management expects marginal margin improvement in the Agri business next year, driven by localization efforts for certain parts and a reduction in discounting post-festival season.