Knorr-Bremse Group's Potential Acquisition of Escorts Kubota's Rail Business

11 Oct, 2023

Knorr-Bremse Group's Potential Acquisition of Escorts Kubota's Rail Business

Knorr-Bremse Group Set to Acquire Escorts Kubota's Rail Business

As per reports from CNBC-TV18, Germany's Knorr-Bremse Group is preparing to make an offer exceeding Rs 4,000 crore for the railway business of Escorts Kubota. The deal, according to sources, is likely to be officially announced within the coming days.

CNBC-TV18 reached out to both Escorts Kubota and the Knorr-Bremse Group for their comments on the matter. While Escorts Kubota is yet to respond, the Knorr-Bremse Group's reply stated, "As a principle, we do not comment on specific M&A topics."

The railway business constitutes 10 percent of Escorts Kubota's total revenue and has witnessed impressive growth, tripling over the last decade. In FY23, this segment reported a revenue of Rs 842 crore, marking a 33 percent increase from the previous fiscal year.

The decision to sell the railway business is a strategic move by Kubota, as it aims to concentrate on its core operations and divest itself of non-core assets. Knorr-Bremse specializes in manufacturing brakes and safety-related sub-systems for rail and commercial vehicles. Both Knorr-Bremse and Escorts Kubota are key suppliers to the Indian Railways.

Escorts Kubota's stock experienced significant gains, surging over 5 percent to reach a record high of Rs 3,440.15 in the previous trading session. This followed a bullish outlook on the stock by brokerage firm DAM Capital Advisors, which anticipates an upside potential of over 60 percent. DAM Capital Advisors has set a target price of Rs 5,100, up from Rs 3,150, after engaging with the company's management.

The bullish outlook is based on the expectation of synergies emerging from Escorts' merger with Kubota, leading to an increase in market share due to the strong standing of both brands in their respective markets. DAM Capital Advisors predicts a compound annual growth rate (CAGR) of 17 percent in revenue, 37 percent in EBITDA, and 41 percent in net profit for FY23-FY26.

Despite the significant gains in the previous session, the stock's upward movement was limited on October 11. At 09:38 am, shares of Escorts Kubota were trading just 0.4 percent higher at Rs 3,408 on the NSE.