Why Escorts Kubota Share Price is Rising

Auto stocks in the Indian market have demonstrated robust performance over recent months. The BSE Auto Index, which monitors the performance of the leading 10 auto stocks in India has exhibited an impressive gain of 8.9% in the preceding 3 months.

This positive trend can be attributed to the resolution of several obstacles, such as changes in regulatory norms and a significant surge in commodity prices, which have now been effectively navigated.

The headwinds from regulatory shifts have been navigated, while the costs of commodities have been absorbed by the consumer segment.

Amidst this optimistic sentiment surrounding the sector, Escorts Kubota shares have stood out by yielding an exceptional return of over 45% within the last three months, hitting a 52-week high on Wednesday.

Here's what's driving the rally in this auto stock.

Railway equipment unit sale on cards

Tractor manufacturer Escorts Kubota is considering the sale of its railway business.

The unit, which makes brake systems, couplers, suspension systems, friction, and rubber products, accounted for 10% of Escorts Kubota's revenue in fiscal 2023.

The company is reportedly in talks with investors for a possible sale but has not yet named any potential buyers or given a potential deal value. Escorts Kubota said the sale is part of its plans to focus on its core tractor business.

The sale of the railway equipment unit would be a major strategic move for Escorts Kubota. The company has been facing challenges of commodity price hike in the railway equipment market and the company has taken price hikes in the middle of June 2023.

The sale would allow Escorts Kubota to focus on its core business and improve its profitability.

The sale is also a sign of the changing dynamics in the Indian railway equipment market.

The market is increasingly consolidating. Escorts Kubota is likely to face competition from these larger players if it decides to keep the railway equipment unit.

The company's strategic decision, among other factors, has contributed to the upward trajectory of its share price.

What next?

Going forward, for FY24, the company expects the domestic tractor industry to register low-single-digit growth, led by adequate reservoir levels, better crop prices, better liquidity, and adequate credit availability.

Despite the onset of the monsoon, there is a sustained demand for the construction equipment industry, led by government thrust and focus on faster execution of infrastructure projects.

The management expects current demand momentum to continue going forward and further accelerate post-monsoon in the balance of the year.

How Escort Kubota shares have performed recently

The share price of Escorts Kubota has surged over 5.6% in the past week. While over six months they are trading higher by 52.3%.

Escorts Kubota has a 52-week high quote of Rs 3,343.9 touched on 30 August 2023 while the stock touched its 52-week low of Rs 1,770.0 on 29 August 2022.

The stock is currently trading at a PE (price to earning) ratio of 48.7x.

About Escorts Kubota

Escorts Kubota is an Indian company manufacturing agricultural tractors and construction equipment. It manufactures engines for agricultural tractors, earth moving and material handling equipment, round and flat tubes, heating elements, and other machines.

The company's operating segments include Agri machinery products, Construction equipment, Railway equipment, and Others.

It generates maximum revenue from the Agri machinery products segment. Geographically, it derives a majority of its revenue from India. The company also trades in oils and lubricants, compressor accessories and spares, and others.

For more details, see the Escorts Kubota company fact sheet and quarterly results.

For a sector overview, read our automobiles sector report. Since small-cap stocks interest you, here's a proven approach on investing in small-cap stocks.

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