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Escorts Kubota Ltd.’s Q1 FY23 results were weak with Ebitda/ adjusted profit after tax miss by ~30/37.5% to ours and ~29/34% to street estimates.
Q1 FY23 witnessed dual impact of market share loss by ~210 basis points QoQ/~140 bps YoY and margins contraction of ~350 bps QoQ/420 bps YoY to 10% (10 quarter low).
Escorts Kubota’s sharp decline in margins explained by seven‐year low gross margins at 27.8% (our estimate: 30%, down 210 bps QoQ), despite price hikes of ~2‐ 2.5%/~2% in Q4 FY22/Q1 FY23 with product mix largely intact QoQ.
Industry growth guidance for FY23 has been revised from mid‐high single digit in Q4 FY22, to low‐mid single digit. We believe while demand sentiments have been impacted by product price hikes (13‐16% over seven quarters), monsoon spread out remain key for meaningful volume recovery.
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