Multibagger stock: Escorts Kubota shares get an rating upgrade; 3 reasons why Emkay is bullish on auto ancillary stock

Multibagger alert: Escorts Kubota share price has experienced a remarkable surge of over 561% in just five years, providing its investors with substantial multibagger returns. Emkay Global Financial Services, a brokerage house, has recently upgraded the rating of this auto ancillary stock from 'Add' to 'buy' and set a target price of ₹4,700.

In the recent period, there has been downward pressure on the Escorts Kubota share price, which has just increased by 15.89% and demonstrated a 46.83% underperformance compared to its sector over the past year, according to trendlyne data. According to Rajesh Bhosale, Equity Technical and Derivative Analyst at Angel One, Escorts Kubota share prices have seen strong correction from the September swing high of ₹4,420 and continue to remain under pressure, today the stock is trading flat around its key support of 89EMA around ₹3,900.

This is a make or break level for the auto ancillary stock, if prices hold on to these levels we can expect a strong bounce towards ₹4,200 whereas a break below these levels can drag further lower towards ₹3,700.

On Monday's session, Escorts Kubota share price opened at ₹3,936.70 apiece on the BSE, the stock touched an intraday high at ₹3,995, and the intraday low of ₹3,897 per share.

Emkay Global provides three primary reasons for the upgradation of the auto ancillary stock

Tractors likely to enter upcycle from H2 on healthy monsoons, favourable base

The brokerage said that the rainfall during the recently finished monsoon season was around 8% greater than the long period average (LPA); in addition, the growth in Kharif acreage was the largest in the previous four years, which bodes well for agricultural profits. These improve the likelihood of a robust cyclical rebound from H2FY25, as does the number of reservoirs and storage capacity, as well as an increasingly favourable base.

“Our recent Expert Call pointed to likely double-digit growth acceleration over Dec-Mar, with positive outlook for the coming 2 crop cycles. Healthy rainfall in strong regions (North and West for Escorts; South for Kubota) along with initiatives on new products and channel development may drive improved positioning for Escorts,” the brokerage said.

Sourcing from India emerging as a big opportunity – even for Escorts-Kubota

Additionally, Kubota wants to boost the percentage of its worldwide procurement that comes from India to 15-20% by 2030, up from about 9% at the moment. According to Escorts, the business could gain almost USD 500 million if it were to transfer even 5% of its global sourcing to India. Escorts undertaking multiple initiatives to address the exports opportunity.

Escorts undertaking multiple initiatives to address the exports opportunity

The brokerage noted that Escorts is making a concerted effort to take advantage of the export opportunity through a number of initiatives: i) the introduction of export-specific products for Europe starting in Q3FY25; ii) the start of direct part supplies to Kubota's global network from Escorts starting this year (in addition to exports already occurring from JV entities); iii) channel expansion/synergies with Kubota (dealer integration pending); and iv) a new greenfield plant (for tractors, engines, and implements) that will cost ₹45 billion in phases to support growth, including for India.

Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.