Motilal Oswal Upgrades Neutral Rating for Kubota to Buy, Targets Rs 3159
Escorts' Q4FY26 Performance Disappoints, Neutral Rating Maintained
Escorts' fourth quarter (4Q) fiscal year (FY) 26 profit after tax (PAT) came in at INR3.2 billion, lower than Motilal Oswal's estimate of INR3.6 billion. The shortfall was primarily due to lower other income. However, earnings before interest, taxes, depreciation, and amortization (EBITDA) were in line with expectations.
The tractor segment experienced disappointing margins, while the construction equipment segment saw a positive surprise in its margins. Despite this, market share loss in tractors remains a significant concern for investors. The potential synergies between Escorts and Kubota are substantial and are expected to materialize over the medium to long term.
Escorts' Valuations
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Based on the current valuations, which reflect a price-to-earnings (P/E) ratio of approximately 28.4x for FY27E and 25.7x for FY28E earnings per share (EPS), the stock appears fairly valued. Motilal Oswal maintains a Neutral rating on the stock with a target price (TP) of INR3,159, based on a P/E ratio of approximately 24x for FY28E EPS.
Comparison of FY27E and FY28E EPS Valuations
| FY27E | FY28E | |
|---|---|---|
| P/E Ratio | ~28.4x | ~25.7x |
| Target Price | - | INR3,159 (based on ~24x FY28E EPS) |
Given that most of the positives seem to have already been factored into valuations, Motilal Oswal reiterates its Neutral rating on the stock.
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Investor Takeaway
Investors should be cautious about the stock's valuation and potential market share loss.
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