Kubota Corp to increase its Stake in Escorts Ltd

5paisa Research Team 5paisa Research Team 10th December 2022 - 05:59 am

The Nanda family has been looking at monetizing its stake in Escorts Ltd for some time now and the first step may have been just about been taken. The buyer, Kubota Corp of Japan, may look to increase its stake from 9.9% to 15% in the first stage and then will look to take a control stake in the company. It will begin with acquiring the stake held by the promoters (Nanda group) in Escorts Ltd.

Escorts Ltd is one of the fastest growing tractor and agricultural equipment manufacturers in India. In the last 2 months, the stock is up 33% from Rs.1,137 to Rs.1,523. Between late 2015 and 2021, Escorts has been a 10-bagger, appreciating from Rs.159 to Rs.1523. Kubota is a leading Japanese agriculture and heavy equipment company with a market cap of $27 billion and is almost 10 times the size of Escorts.

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The Nikhil Nanda group holds a total of 36.59% in Escorts. In March 2020, Kubota of Japan had acquired 9.9% stake in Escorts through preferential offer. Out of the Nanda family holdings, nearly 25% is held in the names of the Escorts Benefit and Welfare Trust. Buying out the promoter stake in Escorts gives a substantial stake to Kubota and they would eventually look to take a controlling stake in the company.

For Kubota Corp, Escorts offers the perfect fit. Kubota has aggressive plans in the Indian agricultural sector and Escorts fits in perfectly. After all, Escorts is the fourth largest tractor manufacturer in India with a market share of 11.3%. Interestingly, Kubota’s stake buy in Escorts last year via preferential issue was at a price of Rs.850, so the stock has nearly doubled from that price.

The Indian agricultural sector has been growing at 3.5% to 4% in the last 2 years and has been robust even through the pandemic. As Indian farms mechanize, Kubota sees a huge opportunity in the Indian agri sector. The Escorts acquisition surely fits in, although Kubota is yet to confirm its intentions by way of a statement.

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