Strong Tractor Sales Boost Escorts’ January-March Earnings
Tractors power Escorts’ January-March growth.
A strong pick-up in tractor volumes helped Escorts Ltd. post a steady quarterly revenue growth and improve margins.
Not only did the company see its farm equipment margins expand, but it also posted an operating profit in its construction equipment segment in the January-March quarter against a loss a year ago.
The company’s revenue grew 29 percent to Rs 1,044 crore as tractor volumes rose 24 percent in the three months ended March over a year ago. Earnings before interest, tax, depreciation and amortisation rose nearly 73 percent to Rs 75 crore with operating margins expanding to 7.3 percent from 5.5 percent. Net profit grew 2.8 times to Rs 59.5 crore year-on-year, ahead of Bloomberg estimates.
Cost of raw materials for the company may have grown but when pegged against revenues, the cost ratio stood at 63.5 percent versus 65.5 percent a year ago. Gross margins remain steady at 32.8 percent.
Earnings before interest and taxes (EBIT) margins for farm equipment stood at a little over 10 percent. Escorts also posted operating gains of Rs 3.9 crore in its construction equipment segment against a loss in the comparable quarter of the previous year. The segment grew 43 percent.
Bharat Madan, chief financial officer at Escorts, expects the growth momentum in tractors to continue. Here are the edited excerpts of an interview with BloombergQuint...
Considering that there has been such robust growth in the revenue as well as net profit, can you sustain this?
The industry is doing well. On monsoon also, as of now, indications are it will be good. If monsoon happens to be good, we are expecting a double-digit growth in the industry, (which) will continue till next June-July. Moving to the election year again, from the government side there will be a lot of push to the agriculture sector. So we think, the next two years will give us pretty decent growth numbers, at least on the tractors business side.
The construction and equipment sector has done very well. Is this a one-off quarter or can we expect sustained growth in this segment?
The first half of the financial year is low on volume compared to the second half, which is the post-monsoon period. I think you will see the same trend happening this year: the first half will be slightly low in terms of volume, but the second half will see very good growth numbers. If you see the growth numbers last year on the back of five-and-a-half years of de-growth in the industry, the base is pretty low. That’s why we saw 30-33 percent growth in the industry last year. We expect that sort of number will sustain, so growth will continue. We don’t see the momentum going down. The lower range will be 15-20 percent.
What kind of traction are you seeing in the first quarter of this financial year in terms of tractor sales?
In April, there was a lot of confusion in the industry regarding the Bharat Stage-IV emission norms. The clarification from the Supreme Court came pretty late in May. So, (in the) first month we had a lot issues in registration, both for tractors and construction equipment. But now as the issue is resolved, we are seeing good growth. We saw around 18 percent growth in tractor volumes and the traction is still there. You will see the growth between 10 and 15 percent this quarter as well.
