Will boost margins by a slew of cost-cutting steps

Written by Yogima Seth | Updated: Jan 17 2010, 04:48am hrs
From a farm and tractor equipment manufacturer to a large player in transportation as well infrastructure sectors with its railways and construction equipment manufacturing division, Escorts Ltd has come a long way. The company, which went through a rough period, seems to be coming back on tracks and showing improved margins on quarter-on-quarter basis. Nikhil Nanda, joint managing director, Escorts, spoke to FEs Yogima Seth on the companys achievements in the first quarter (October-December) of FY10 and its future plans. Escorts follows the October-September fiscal year. Excerpts:

The companys first quarter has been one of the best quarters in Escorts history. What do you attribute this to

Our first quarter results reflect the companys consistent focus to enhance profitability through a slew of measures. All key ratios have shown significant improvement in comparison to the corresponding quarter. While material costs as a percentage to sales have been brought down by 2.5% from 70.3% to 67.8% through a series of cost reduction measures, our debt equity ratio has come down to 0.12, which in turn has led to reduction in finance charges dropping by 58.7% to Rs 6.78 crore vis--vis Rs 16.40 crore in the first quarter of FY09. The company has paid back Rs 27 crore as debt in the first quarter and now we are left with a total debt of Rs 237 crore of which Rs 60 crore is the working capital, Rs 105 crore long-term debt and over Rs 50 crore is convertible debentures. Further, the company has aggressively improved its product mix over the last one year by launching eight new products, across 20 horse power to 80 horse power categories, in last 12 months and as we move ahead, cost rationalisation and resource optimisation initiatives will be further strengthened, thereby further improving our margins and net earnings.

How do you intend to strengthen your agri business division

It is expected that tractor sales in India will go up by 4.5% in 2010 at 3,55,000 units as compared to 3,40,000 units last year and we hope to increase our market share beyond 14.5% now by introducing six-seven more products in FY10. There would be capital expenditure of Rs 50-55 crore for FY10 as we are getting into farm mechanisation which will further increase our capacity utilization. Further, the company is increasing its penetration across India, especially in southern and western parts of the country and hopes to add more dealers to our existing 850 dealers across the country.

What are your plans for the companys railway business

Though our agri machinery division constitutes 80% to the companys topline but railways and the construction equipment division is growing at a compound annual growth rate of 35% and we expect it to continue growing at the same rate over the next two-three years on the back of increasing investment in railways and infrastructure. The company is now entering into metro and mono rails with rolling stocks to further expand our portfolio.

How do you plan to improve the construction equipment division

Escorts Construction Equipment is a 100% subsidiary of Escorts and the company hopes to maintain its leading position in the pick and carry crane category as we have been working on our Ballabgarh plant over the last one year.