Escorts Kubota posts over 20% drop in Q1 PAT to ₹147.5 crore, revenue rises
Premium- The bottom line was impacted due to lower operating profit as steep inflation in commodity prices coupled with adverse product mix took a toll.
Tractors manufacturer, Escorts Kubota registers a 20.35% decline in standalone net profit to ₹147.5 crore in the quarter ending June 30, 2022 (Q1FY23) compared to a profit of ₹185.2 crore in the corresponding quarter of the previous fiscal. The bottom line was impacted due to lower operating profit as steep inflation in commodity prices coupled with adverse product mix took a toll. On the other hand, revenue from operations climbed to ₹2,014.9 crore in Q1FY23 against ₹1,677 crore in the same period last year.
During the quarter, standalone EBITDA slipped to ₹201.6 crore as against ₹238.8 crore in Q1FY22.
In its audit report, Escorts Kubota said, although the company took price increase across its product portfolio along with cost reduction efforts, but steep inflation in commodity prices coupled with adverse product mix impact due to industry shift towards lower horsepower segment adversely impacted operating profit for the quarter ended June 2022. During the quarter profit before tax was also impacted due to lower other income due to temporary mark-to-market losses on treasury Investments.
Mitul Shah- Head of Research at Reliance Securities said, " EBITDA decreased by 16% YoY (down 20% QoQ) to ₹2 billion, 29.7% below our estimate of Rs2.87 billion due to higher RM prices and inferior product mix. EBITDA margin contracted by 423bps YoY (down 345bps QoQ) to 10% (vs. our estimate of 13.5%) due to lower operating leverage, higher commodity cost, and lag effect in passing cost inflation to end customers. It seems clear pricing pressure amid competitive intensity in tractor segment."
Shah added, "Revenue increased by 20% YoY (up 8% QoQ) to Rs20.1bn, vs. our estimate of Rs21.2bn. Tractor volume grew by 3% YoY (up 22% QoQ), while construction equipment volume grew by 59% YoY (down 25% QoQ). Primary impact on revenue is due to higher contribution from lower HP tractors impacting revenues as well as margins to greater extent."
On a consolidated basis, the company posted a net profit of ₹140.6 crore in Q1FY23 as against a profit of ₹178.5. crore in the corresponding quarter of the previous fiscal. Revenue from operations was at ₹2,032.1 crore in the quarter under review up by 19.0% as against ₹1,707.3 crore in Q1 a year ago. EPS for the quarter ended June 2022 was reported at ₹13.01 as against ₹18.13 in the corresponding quarter and ₹18.56 in the sequential quarter.
Tractor sales volume at 26,797 tractors for the quarter ended June 2022 went up by 3.3% as against 25,935 tractors in the corresponding quarter of the previous fiscal. Meanwhile, construction equipment sales volume at 966 machines for the quarter was up by 59% as against 606 machines in Q1FY22.
Nikhil Nanda, Chairman, and Managing Director, said, "We are excited to be Escorts Kubota Limited (EKL) now. During the first quarter of current fiscal industry in Agri sector has witnessed positive trend, after 3 quarter of degrowth. With onset of monsoon, and likely record Kharif crop production, rural liquidity and farmer sentiments are expected to gradually improve. In our construction business, we have outperformed the industry in our served markets and expect growth momentum to continue with Government's thrust on infrastructure development."
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"We are witnessing good order booking in our Railway Business and expect a strong fiscal going ahead. With recent Government actions, Inflation may stabilise in near term and operating leverage may further possibly help in partially diluting the impact on margins in coming quarters," Nanda added.
In Q1FY23, the company's railway equipment segment revenue stood at ₹173.4 crore up by 45.2% from ₹119 .4 crore in the corresponding quarter of the previous fiscal. The order book for the division, at end of June 2022, was more than ₹850 crore.
Should you invest in Escorts Kubota shares post Q1?
In Reliance Securities expert's view, despite near-term demand weakness in tractor sales, on a long-term basis (our 2-year based thesis) we expect the tractor industry to continue growing at higher than historical long-term average of 8% on account of changing industry dynamics, increasing mechanization, rising affordability, and widening alternate usage of tractors. Moreover, ESC’s railway equipment business would be back on track in next 1-2 quarters with strong order book of Rs8.5bn at present. Its construction equipment business would also grow at healthy pace over FY23E-FY24E.
"In view of sizable presence in relatively better placed tractor segment, strong positive cash flow and improving return ratios, we have a BUY rating on ESC," Shah added.
On BSE, the company's shares closed at ₹1722.40 apiece down by ₹13.20 or 0.76%. The company's market cap is around ₹22,725.45 crore.
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