Kubota Corporation announced that it will invest in an Indian leading tractor manufacturer, Escorts Limited. Through this investment, Kubota intends to increase its presence in India – the world’s largest tractor market – as well as its commitment to the competitive tractor market, which has massive growth potential, thus further expanding its business.
Background and aims
- The tractor market in India is one of the world’s largest in terms of unit sales and expects to expand further. In 2008, Kubota established Kubota Agricultural Machinery India Pvt. Ltd. (hereinafter, “KAI”) as a foothold in the Indian market.
- At present, local manufacturers are playing key roles there, and they are all enhancing partnerships with foreign-affiliated manufacturers. In February 2019, Kubota established a joint-venture tractor manufacturing company with EL and mass production is due to start this July.
- Through this capital tie, the two companies intend to deepen their cooperative relationship further and, by leveraging each other’s strengths, create synergy across a broad range of their business, including development, production, sales, distribution, and parts procurement, in a bid to extend their reach in the Indian market.
- Meanwhile, the competitive tractors which currently form the core of the Indian tractor market, are gaining popularity in other markets around the world. Kubota hopes to expand its global reach in those model market by tapping into EL’s parts procurement networks and capability to reduce cost.
- EL will issue new equity shares to Kubota on a preferential allotment basis (subject to shareholders’ and necessary regulatory approvals) pursuant to which Kubota will hold 9.1% of EL’s paid up share capital.
- The total amount of investment will be approximately 16 billion yen.
- Subsequent to the preferential allotment to Kubota, EL will undertake a reduction of its share capital from the shares held by the Escorts Benefit and Welfare Trust (subject to receipt of necessary approvals) of such number of equity shares as are being issued to Kubota under the preferential allotment. Post the capital reduction, Kubota’s stake in EL will increase to 10%.
- After going through the necessary procedures and subject to receipt of requisite approvals, the investment is likely to be completed by June 2020.
- To further facilitate and strengthen the collaboration with EL, Kubota will sell 40% of stake in KAI to EL, in addition to this investment.
- Going forward, Kubota aims to establish a joint research and development center with EL to develop products that are optimized for the local market and shorten the development period.