Kubota of Japan rumoured to acquire Nanda’s stake in Escorts

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.
  • Nanda family (the promoters) currently owns 36.59% of EL. KC is rumoured to acquire this stake in stages and is initially targeting to acquire 15%.
  • 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.

Gradually cashing out when the going is good or the succession challenges – we will get to know as we move forward !

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