- 30 Aug 2023
- ICICI Securities
VALUE UNLOCKING THROUGH SALE OF RAILWAY BUSINESS SEGMENT
ESCORTS - 3116 Change: -14.50 (-0.46 %)News: As per media sources, Escorts Kubota is looking at unlocking value by selling of its Railway segment business which is of keen investor interest currently due to ambitious capex spends by the government in this domain. Media snippets also indicate that since Kubota has nil expertise in railways, so divestment of the same would not really hamper their overall growth strategy.
Views: Escorts Kubota was performing well in the railway segment with FY23 sales at ₹ 842 crore (up 33% YoY, ~10% of total topline) with Q1FY24 sales at ~₹300 crore. Company on a steady basis realises ~15% EBIT margins and RoCE>15%. Such a business could command a P/S in the range of 2-4x thereby resulting in this segment of Escorts Kubota being valued at ~₹ 1,680-3,350 crore. This is sentimentally positive for the stock as the company is primarily seen as farm machinery play (tractors). However Escorts Kubota itself is trading a ~5x P/S on FY23 basis (including railway business), hence any spin off less than ₹ 4,200 crore of valuation should be taken as negative by the markets.
Impact: Neutral