Escorts Sees Exports Double In Next 3-4 Years
The company’s domestic product portfolio expansion is complete, says Escorts CFO.
Tractor maker Escorts Ltd. plans to double its export volumes over the next three-four years to 8,000-10,000 units, Bharat Madan, chief financial officer, told BloombergQuint on the sidelines of Emkay's annual investor conference or the Emkay-DBS Confluence.
The company’s domestic product portfolio expansion is complete and it now wants to mainly focus on the exports market, Madan said.
On adapting to the new Goods and Services Tax regime, he said the company has been able to smoothly make the transition but there is still some confusion among its dealers over availing transition credit.
Here are the edited excerpts from the conversation.
Since monsoons are good and we are heading towards a festive season, how are you gearing up for the demand in future?
On the ground, demand remains strong in the rural economy. There were temporary hiccups like GST. There were issues like channel destocking at that time. But things are picking up again. We reported strong numbers in July. Channel (distributor) stocking is happening again and we will see a similar trend in August. We expect that this year we can get industry and earnings growth of 12-15 percent. Last year it was 13-14 percent, and this year it will cross that peak.
Do you think monsoon could affect demand going forward and could growth surprise to the upside in next few quarters?
That is a possibility. Look at the trend in the last election years, 2008-09 and 2014, the industry had shown very strong growth. In the pre-election period, we see a lot of freebies coming from the government especially for this particular (agri-machinery) sector. So, this time the demand will be strong. There could be a positive surprise. This year and next year which is going to be the election year, we should get good industrial growth for the agricultural sector and the rural economy.
Do you think operating leverage will push up the margin or will the increase in raw material costs, especially steel and aluminum, restrict margin growth?
We have seen pressure on the commodity side in the first quarter. We continue to perform better in the margin profile. For the next 2-3 years, we expect the margins to grow. This year, from the tractor business, we expect to cross double-digit margins. Over longer periods, your cost benefits are addressed. So, in the remaining part of the year, we will not see greater pressure on the commodity prices. We should be able to hold on to the margin now.
In terms of new product pipeline, how are you positioning yourself in the market?
Our domestic product portfolio expansion is almost complete. We have launched many products in the last 2.5-3 years. Right now, the company is focusing on building its portfolio for the export market for the international business. In the last few months, we have seen good export growth and this year, too, we expect 100 percent growth in the export market. Our aim is to take our export volume to 8,000-10,000 tractors in the next 3-4 years. For that we are building up the portfolio of our products. So, that investment is continuing.
On the domestic side, there will be a few launches, especially in the rice belt, where we are a weaker player as of now. Those segments we are going to address this year.
