This Jhunjhunwala stock tanks 7% after flop show in June quarter

New Delhi: Tractor manufacturer Escorts Kubota plunged about 7 per cent during early trade on Tuesday following a slump in sales in July and a flop show in the June 2022 quarter.

The auto major reported a 20.35 per cent decline in the standalone net profit to Rs 147.5 crore in the quarter ended on June 30, 2022, compared with a profit of Rs 185.2 crore in the corresponding quarter of the previous fiscal year.

The farm equipment manufacturing firm sold 5,360 tractors in July 2022, down 18.3 per cent year-on-year (YoY). While domestic tractor sales declined by 22.3 per cent to 4,704 in July 2022, tractor exports increased by 28.9 per cent to 656 units in July 2022 over July 2021.

Following this development, shares of Escorts Kubota plunged to Rs 1,604.50 on Tuesday, before covering to Rs 1,636.40 by 9.45 am.

The bottomline of the company was impacted due to lower operating profit. The margins, meanwhile, were hurt by steep inflation in commodity prices.

The company reported a 20 per cent rise in the revenue from operations to Rs 2,014.9 crore in Q1FY23 against Rs 1,677 crore in the same period last year.

Escorts Kubota reported muted performance in June 2022 quarter and was below our estimates on the profitability front, said ICICI Securities in its first cut.

Ace investor Rakesh Jhunjhunwala held a 1.39 per cent stake or 18,30,388 equity shares in the tractor manufacturer Escorts Kubota by the end of the first quarter of the ongoing fiscal year. His stake is worth Rs 297.1 crore

Mitul Shah, Head of Research at Reliance Securities said, "Despite near-term demand weakness in tractor sales, on a long-term basis, we expect the tractor industry to continue growing at higher than the historical long-term average of 8 per cent."

Its construction equipment business is expected to grow at a healthy pace over FY23E-FY24E, it said. In view of the sizable presence in the relatively better-placed tractor segment, strong positive cash flow and improved return ratios should aid the stock, Shah added with a buy rating on the counter.

Brokerage firm Yes Securities has downgraded Escorts Kubota to 'reduce' with a target price of Rs 1,382, signalling a 20 per cent fall in the counter.

"We believe Escorts is more vulnerable compared to the peers as it derives over 80 per cent of its revenues from FES segment and aggressive expansion plans by Sonalika, TAFE, John Deere, and others to continue dent market share," it said.

Benefits out of Kubota JV will only reflect over 2‐3 years, according to the brokerage. "We would keenly await management's action plan post Kubota which ESC intends to release by 3QFY23," it added.

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