Recommendation from Automobile & Ancillaries Sector

This column gives you scrip chosen by the research team during the fortnight that is fundamentally strong and expected to give good capital appreciation over a time period of 1 year.[EasyDNNnews:PaidContentStart]

Escorts Kubota Ltd : GROWTH AT CROSSROADS OF AGRI & INFRA

HERE IS WHY
✓  Rapid Domestic and Export Growth
✓  Leveraging Kubota Global Network
✓  Riding Structural Industry Tailwinds

I ndia’s agricultural and Construction equipment industries are witnessing structural growth, driven by government initiatives, technology adoption, and the need for productivity enhancement. According to Mordor Intelligence, the Indian Agricultural Machinery market is estimated at USD 18.15 billion in 2025 and is projected to reach USD 27.29 billion by 2030, reflecting a CAGR of 8.5 per cent. Simultaneously, the construction equipment industry is on a solid growth trajectory, supported by government spending on roads, highways, Railways, and renewable energy projects. Valued at USD 14.3 billion in 2024, the market is expected to expand at a CAGR of 7.6 per cent, nearly doubling to USD 29.5 billion by 2033. This dual-sector momentum creates a favourable backdrop for companies like Escorts Kubota Ltd (EKL), which operate at the intersection of agriculture and infrastructure development. Reflecting this strong positioning, we recommend EKL as the Choice Scrip pick for this issue.

EKL is a leading Indian engineering company with a diversified presence across Agri Machinery and Construction Equipment segments. EKL derives approximately 88 per cent of its revenue from the Agri Machinery division, which includes tractors and related farm implements, while the remaining 12 per cent comes from its Construction Equipment business, covering cranes, compactors, and backhoe loaders. EKL currently commands an 11.8 per cent market share in the domestic tractor market, with a total production capacity of 1,70,000 units per annum, operating at about 65 per cent utilisation in FY25. Its Construction Equipment division, with an annual capacity of 10,000 units, operated at around 60 per cent utilisation in FY25.

In Q1 FY26, EKL revenue from operations stood at ₹2,500.1 crore, down 2.9 per cent year-on-year from ₹2,573.7 crore in Q1 FY25 but up 2.3 per cent sequentially from ₹2,444.9 crore in Q4 FY25. Profit After Tax (PAT) from continuing operations jumped 39.8 per cent year-on-year to ₹369.5 crore and rose 36 per cent quarter-on-quarter. Including discontinued operations, total PAT surged 363.1 per cent year-on-year to ₹1,397.1 crore, supported by one-time gains. EKL sold its Railway Equipment Business Division to Sona Comstar for ₹1,600 crore in a slump sale deal that was completed in June 2025.

In FY25, non-tractor sales contributed about 20 per cent to the Agri Machinery segment’s total revenue, underscoring EKL’s growing diversification into specialised agri-equipment solutions. During the year, the company completed the merger of its joint ventures—Kubota Agricultural Machinery India and Escorts Kubota India forming a unified entity to deliver integrated agricultural solutions across markets.

For FY26, exports are projected to grow 25–30 per cent, driven primarily by strong demand for compact tractors in Europe, EKL’s key export destination. EKL is also leveraging Kubota’s global network by integrating Farmtrac and Kubota distribution channels in key international markets such as Mexico, South Africa, and Sri Lanka. Management anticipates demand recovery in H2 FY26, aided by improved rural sentiment and higher government infrastructure spending supporting the Construction Equipment business.

On the valuation front, EKL is trading at a P/E of 34.4x, below the industry average of 40.7x and its three-year median of 39.1x. The company maintains healthy return ratios with ROCE at 13.6 per cent and ROE at 12.8 per cent, supported by a reasonable debt-to-equity ratio of 0.01. Considering all these factors, we recommend a BUY.

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