Escorts Kubota’s railway business will likely be bought by Knorr-Bremse Group

According to CNBC-TV18, Knorr-Bremse Group may bid more than Rs 4,000 crore for Escorts Kubota’s rail business.

Ten percent of Escorts Kubota’s entire income comes from the railroad industry.

According to sources cited by CNBC-TV18, Germany-based Knorr-Bremse Group plans to pay more than Rs 4,000 crore to acquire Escorts Kubota’s railway business. The report also indicated that the deal would probably be announced in a few days.

Escorts Kubota and the Knorr-Bremse Group were also contacted in writing by CNBC-TV18 for their opinions on the subject. Escorts Kubota has not yet responded, but the Knorr-Bremse Group has responded, saying that “as a general principle, we do not comment on specific M&A topics.”

Ten percent of Escort Kubota’s overall revenue comes from the railway sector, which has tripled in the previous ten years. In FY23, the segment reported revenue of Rs 842 crore, an increase of 33% from the previous fiscal.

Escort Kubota’s intention to sell its rail business on August 29 was previously disclosed by the business television station.

Due to its desire to concentrate on its core activities and the fact that Kubota has no discernible footprint in the rail industry, the company is considering to sell off its railroad business.

For trains and commercial vehicles, Knorr-Bremse manufactures brakes and safety-related components. Escorts Kubota and Knorr-Bremse are both significant suppliers to the Indian Railways.

Shares of Escorts Kubota had increased by almost 5% the previous session to reach a new high of Rs 3,440.15 after stockbroker DAM Capital Advisors issued a strong view on the stock, projecting an increase of over 60%.

The brokerage firm raised its target price from Rs 3,150 to Rs 5,100 in expectation that the stock will surpass the Rs 5,000 mark in the upcoming 12 months.

DAM Capital stated that Escorts is placing a lot of emphasis on creating synergies from its merger with Kubota after meeting with the company’s management. Due to the synergistic impact and the strong positioning of both brands in their respective marketplaces, the company also expects to see an increase in its market share.

DAM Capital predicts a revenue CAGR (compound annual growth rate) of 17%, EBITDA of 37%, and net profit of 41% for FY23–FY26, taking the company’s future goals to scale into account.

On October 11, the stock’s upside was limited by substantial advances in the counter the previous session. Shares of Escorts Kubota were merely trading higher on the NSE at Rs 3,408 at 09.38 a.m.