THESE are difficult times for Escorts. With demand for tractors coming down, the firm has lost market share and profits are under pressure—in the current year profits could be down to a third of the R247 crore reported in FY14.
But Nikhil Nanda, managing director, Escorts Ltd isn’t giving up just yet. He agrees the poor monsoon has played spoilsport this year but insists the tractor business is still profitable with operating margins at around 9%. The company is now training its guns on the larger segment—50HP engine and above.
Nanda’s convinced that as land holdings get bigger, the demand for more powerful farm equipment will rise. Moreover, the shortage of labour as also shrinking cultivable land would necessitate better productivity.
The firm also wants to focus on customised vehicles to cater to the southern markets. That’s probably the right way to to go because, as analysts point out, some part of the loss in market share is probably because the company has a smaller presence in the southern and western parts of the country. Given how seasonal and cyclical the tractor industry can be, having a bigger reach helps.
Escort’s construction equipment and auto ancillary products divisions are letting it down—they’ve been in the red for several years now.
“Although we have a 54% market share in the material handling segment, a lot of capital got eroded due to continuous losses in these divisions,” Nanda explains. He has, however, managed to lower the break-even level for the equipment division and believes it will start contributing to the group’s earnings from the March, 2015 quarter. It also implemented a Voluntary Retirement Scheme for some 350 employees in its auto division earlier this year and while it spent R31 crore, the move, Nanda says, should benefit the firm.