escorts: Japanese heavy equipment leader Kubota could increase stake in Escorts
The Faridabad-based escort group are considering a full sale of the promoter’s stake, although this could happen in stages, the people named above said.
The Nanda family headed by President Nikhil Nanda held 36.59% of listed escorts at the end of June. Of this total, 24.99% is held through the Escorts Benefit & Welfare Trust.
According to the plan, Kubota Corp intends to initially take back around 15% of the promoters, the people mentioned above said.
Escorts shares jumped 30% in the past 3 months
Escorts shares have jumped 30% in the past three months, outperforming the benchmark Sensex, which gained 12.05% over the same period. The action closed at Rs 1,519.45, up 3.1%, on BSE on Wednesday, for a market value of Rs 20,487.44 crore. On this basis, the holdings of the promoter will be valued at Rs 7,496.35 crore.
“Eventually, the Nanda family will sell the business completely to Kubota. However, for now, the Japanese are also slightly cautious and in no rush,” said one of the people named above. “Most likely, these actions would come from the Escorts Benefit & Welfare Trust.”
The escorts told ET, “It was speculation in the market. In accordance with company policy, we do not comment on speculation or rumors.”
Kubota did not respond to questions sent on Tuesday.
Escorts were at the heart of one of India’s first hostile takeover attempts in the early 1980s, when UK-based Swraj Paul sought to acquire it. The offer failed after a fierce legal and political battle. Paul’s other target at the time was DCM Ltd. Escorts manufactured Yamaha motorcycles and also had their own brand of Rajdoot motorcycles.
The company, founded by brothers Har Prasad Nanda and Yudi Nanda in pre-independent India, is the country’s fourth-largest tractor manufacturer with an 11.3% market share in fiscal year 21. The group also holds commercial interests in construction equipment and rail space. Escorts started their agricultural machinery manufacturing plant in Faridabad in 1960.
In March of last year, Kubota acquired approximately 9.9% of Escorts through a preferential allotment. Escorts granted 12.3 million shares through a preferential issue to Kubota at an issue price of Rs 850 per share, the company said in a regulatory filing in March 2020. Following the preferential allotment in Kubota, Escorts undertook a reduction in its share capital. shares held by Escorts Benefit and Welfare Trust.
Having started operations in 1890, Kubota is engaged in the production of tractors, agricultural equipment, engines, construction equipment, vending machines, pipes, valves, cast iron, pumps and equipment for water purification, wastewater treatment and air conditioning. The company intends to expand into rural India, given the potential for growth.
The good moment
Analysts say now is the right time for Kubota as the tractor market is booming right now.
“Kubota aims to establish a joint research and development center with Escorts to develop products optimized for the local market and shorten the development period,” said an industry insider.
Escorts reported net profit of Rs 185.2 crore in the June quarter, doubling from a year ago, but down from Rs 271.3 crore in the March quarter.
“The unlock has helped to strengthen the demand in the farming community and we certainly hope that with the continued efforts of the government, the tractor and farm equipment industry and the construction equipment industry will return to growth path. “said Nikhil Nanda, CMD of Escorts, when announcing the latest quarterly results.
Demand prospects are turning gloomy, raising uncertainties over the next 12-15 months, although the Kubota joint venture, a leaner cost structure, the railroad / construction equipment takeover and a strong balance sheet will dilute the impact on the income statement, according to a Motilal Oswal report.