As existing investor Kubota eyes majority shareholding in Escorts, analysts expect this going forward

An existing investor of Escorts, Kubota has made an open offer to pick up an additional 5.9 per cent stake in the company, the tractor manufacturing firm said in an exchange filing on Thursday. The shares of Escorts spurted over 10 per cent to Rs 1802.9 per share on the BSE today.

Kubota, an agricultural machinery Japanese company aims to be the majority stakeholder in the company as “it plans to make an open offer to the public shareholders of Escorts to acquire up to 26 per cent of the share capital”, Edelweiss Alternative Research report states.

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Escorts will issue 9.36 equity shares at a price of Rs 2,000 per equity share to Japanese partner Kubota on a preferential basis. The Japanese investor will become a joint promoter of the company along with the existing promoters post completion of the open offer and issue becoming effective.

“The Board has approved the raising of equity capital aggregating to Rs 18,72,74,52,000 through preferential issue of 93,63,726 equity shares of face value INR 10 at INR 2,000 per share (including a premium of Rs 1,990 for each equity share), to Kubota Corporation, Japan, a company incorporated under the laws of Japan," said Escort said in a press release.

Kubota at present holds a 9.09 per cent stake, as per the shareholding pattern of Escorts available on the exchanges; and post preferential allotment, its stake in the company will be 14.99 per cent.

The current promoter group (Nanda family), which holds 37.36 per cent of the company, is not selling any shares of the company, Escorts said in an exchange filing on Thursday.

As per the shareholding, the minimum acceptance ratio is 51 per cent and the final acceptance could be around 70-75 per cent. Thus with favourable risk to reward, one can look to participate at the current market price, Edelweiss report said.

An ace investor Rakesh Jhunjhunwala, who is also termed as the Big Bull of the Indian stock market, holds a 4.8 per cent stake in the company, as per the September shareholding pattern. As per Trendlyne, the celebrity investor has 6,400,000 shares worth Rs 1,033.1 crore as of November 18, 2021.

Brijesh Bhatia Senior Research Analyst at Equitymaster says, “Tractor company stocks like Escorts, VST Tillers, and HMT India are bullish since June 2021 and outperforming against the auto index.”

He adds, “The ratio chart of Tractors Index / Nifty Auto Index is approaching the resistance zone of 7 years’ regression channel indicating an end to the outperformance of the tractors index.”