Kubota Corp (KC) of Japan, an agriculture and heavy equipment firm is rumoured to be in discussions with the promoters (Nanda family) to acquire their stake in Escorts Ltd (EL).
Key points to note –
- KC’s current mcap is around USD 27 bn and EL’s about USD 2.7bn.
- KC already owns 9.09% in EL – it was acquired last year through the preferential allotment route @ Rs 850/ share. Current share price of EL is Rs 1,500. Adjusting for Escorts Benefit and Welfare Trust (EBWT)’s 24.99%, which is more of treasury kind of shares and hence can be cancelled for calculation, the effective stake is 12.11%.
- Nanda family (the promoters) currently owns 11.6%% of EL. Adjusting for EBWT this stake comes to 15.46%. KC is rumoured to acquire this stake.
- EL is the 4th largest tractor player in the country with 11.3% market share in FY21. The first 3 players were Mahindra (38.2%), TAFE (18.4%) and Sonalika (13.0%).
The Company has declined to comment on the speculation. However, these kind of rumours are rarely incorrect, although they may be months ahead of the actual deal announcement.
KC’s interest is not hard to figure out – increasing it’s bet on India.
However, promoters interest in selling off their stake is something that’s interesting. This is especially after the spectacular turnaround that Nikhil Nanada (current Chairman) has bought to the franchise since taking over in early 2000, after all the hard work and especially now when the Indian economy is expected to have a brighter future.
I remember Company going through an extremely stressful period when he had taken over and not many people had expected such a turnaround. For ease of reference, note the following –
- EL reported a net profit of Rs 871 cr in FY 21 vs just Rs 29 cr in FY 2009
- Company is debt free currently
- Stock price has generated a CAGR of 35% in last 10 years
Given above, it’s unclear why promoters would sell off.
Cashing out when the going is good or the succession challenges – we will get to know as we move forward !