Rakesh Jhunjhunwala portfolio auto stock falls for 2nd straight day. Should you buy, hold, accumulate?

Shares of Escorts plunged for second straight day as the company reported a muted performance for Q1FY23 as its standalone net profit declined to ₹147.5 crore in the first quarter ending June 2022 as compared to ₹185 crore in the year-ago quarter while EBITDA margins for the quarter came in at 10%, down 307 bps from the previous quarter.

The stock price has grown at around 19% CAGR over last five years from around ₹670 in August 2017, vastly outperforming the Nifty Auto Index. Brokerage house ICICI Securities has retained HOLD rating on Escorts shares amid muted tractor growth prospects over FY22-24E & decline in market share as well as pressure on margins.

Key triggers for future price performance, as per the brokerage, could be timely disclosure of detailed working on scaling up the company using expertise of new co-promoter Kubota, Steady rainfall prospects amid healthy reservoir levels. “Construction equipment (CE) and railways (RED) segments to perform well over FY22-24E amid pickup in economic activity and strong order book,” it added.

Last month, farm machinery and construction equipment maker Escorts received requisite approvals for changing its name to Escorts Kubota Ltd, as Japan's Kubota Corporation increasing its stake in Escorts to 44.8% by subscribing to new equity shares and through an open offer to the public shareholders of Escorts.

Another brokerage Dolat Capital expects Kubota's takeover will substantially improve Escorts' medium-term growth outlook, based onWider product portfolio and distribution network will help to increase markets share in India (especially for southern India) and export, expansion of product portfolio in construction, harvesting equipment and engine manufacturing space and commencement of component exports to meet Kubota’s global requirements. 

Dolat values the auto stock at ₹1,957 (target price) and has recommended Accumulate rating on. Shares of Escorts are down about 14% in 2022 (YTD) so far.

As per the recent shareholding pattern of Escorts Kubota Ltd, Indian ace investor and stock market trader Rakesh Jhunjhunwala holds 1.39% stake in the tractor manufacturer as of June 2022.

The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.