Escorts hits new high as Co starts commercial production of Kubota tractors


Shares of Escorts rallied 7 per cent to Rs 1,284.45, also its record high on the BSE on Monday after the company announced the commissioning of manufacturing operations of a joint venture (JV) with Kubota Corporation on Friday, September 25, 2020.  The stock surpassed its previous high of Rs 1,280, touched on September 18, 2020.


In the JV, Escorts Kubota India Pvt Ltd, Kubota Corporation has 60 per cent ownership while the rest 40 per cent is with Escorts. The JV was set up with a total investment of around Rs 300 crore and has the capacity to manufacture 50,000 units of tractors annually.


The commissioning is within the stipulated time frame shared by the company earlier and should contribute to incremental profitability, going forward. The facility will be utilised mainly for the export markets, ICICI Securities said in a note.


In the past one month, the stock of Escorts has outpaced the market by gaining 12 per cent, against a 4 per cent decline in the S&P BSE Sensex.


In July 2020, the company notified the completion of the preferential issue to Kubota Corporation; the transaction to acquire a 40 per cent stake in Kubota Agricultural Machinery Private Limited is expected to be completed by the end of Q3 FY2021.


Over the past few years, Escorts has been able to report a sustained healthy operational performance across business divisions. This has aided the company in recording strong cash accruals and had helped Escorts become nearly debt-free (debt of Rs 19.9 crore excluding lease liabilities as of March 31, 2020) while also having substantial unencumbered cash and liquid investments.


"A continuation of steady operational performance in Q1 FY2021, despite the adverse impact of the lockdowns following the spread of novel coronavirus (Covid-19), coupled with the receipt of funds post the completion of the preferential issue, has led to a further enhancement in the unencumbered cash and liquid investments to levels of Rs 2,219 crore as of July 31, 2020; the same is expected to aid Escorts in strengthening its business profile by supporting its capacity and network expansion plans over the medium term," ICRA said in a rating rationale on September 17, 2020.