Rakesh Jhunjhunwala hikes stake in this tractor maker: Should you invest?

NEW DELHI: Ace investor Rakesh Jhunjhunwala upped his stake in Escorts in February, the month the tractor maker reported a 45.6 per cent YoY decline in the number of units sold. The farm equipment maker is in news as Japanese tractor major Kubota Corporation is looking to acquire a majority stake in the Nanda family-owned company.

Sebi has given nod to Escorts' open offer and now exchange notification and letter of offer should be out in next few days, said Edelweiss which added that it expects the open offer to commence anytime in next two to three weeks and the tendering period to close after two weeks from the start date.

Jhunjhunwala held 75,00,000 shares or 5.68 per cent stake in Escorts as of February 18 compared with 6,400,000 shares or 5.22 per cent stake as of December 31. Analyst targets suggest upside is limited for the stock.

"The completion of payment of consideration or return of equity shares to public shareholders can spill over till the start of April. We will get exact timelines once the letter of offer is published. Ideally from March 1, the entire open offer process should not take more than five to five and a half weeks for completion. Now with all the approvals in place, we expect the stock to run up till Rs 1,950 in the next few days and the final acceptance to be around 80 per cent," the brokerage said.

The stock was up 1.2 per cent at Rs 1,874.35 on Wednesday.

Edelweiss said in case the stock moves nearer to Rs 2,000 or above, the acceptance would be 100 per cent and it’s better for existing investors to sell shares on screen instead of tendering.

"We will continuously monitor the share price movement and will suggest if there is any change in our final acceptance expectations," it said.

In February, ET reported that Nanda family, promoters of tractor and components major Escorts will continue to jointly run the company even after Japanese partner Kubota Corporation acquires majority control in it.

Escorts said it sold 6,114 units in February from 11,230 units sold in the year-ago quarter. This is against a 27 per cent drop in sales for M&M.

The company said the overall higher rabi sowing this year, good level of water reservoirs, increased Union budget allocations to rural and agri sector and initial indicators of normal monsoon next year will drive positive momentum for tractor industry in the coming year.

Nirmal Bang said it has a cautious stance on Escorts. "Escorts reported weaker-than-expected numbers due to a high base, delayed Kharif harvest and commodity price pressures. However, broader commentary indicates that the underlying rural sentiments are robust and that all-time high Rabi sowing and higher liquidity with farmers should bode well for the tractor industry going forward," it said.

This brokerage has a target of Rs 1,900 on the stock. Kotak Institutional Equities sees the stock at Rs 1,800.