Escorts Kubota, India’s fourth largest tractor manufacturer, has had to realign capital expenditure (capex) for the year due to delay in certain projects. The company, however, hopes to have a significantly larger capex in FY25.
The revised capex earmarked by the Delhi-based company for FY24 is around Rs 200-225 crore, down from Rs 350 crore planned earlier.
Speaking to FE, Bharat Madan, whole-time director and chief financial officer, Escorts Kubota said, “Projects are slightly delayed and that’s why the ordering may happen but cash flow will not happen to the extent we had guided earlier.”
Following the ban on use of diesel gensets in the National Capital Region (NCR) from May 15, genset makers had to take a hit on their books. Escorts Kubota also makes such diesel gensets.
“The projects that are delayed are compliance-related ones. The NCR has banned all diesel gensets and they are replaced by gas gensets,” Madan added.
Capex for the company during the April to September period (cash flow) was around Rupees 60-70 crore. Product capex for the FY24 will be Rupees 100 crore. “Next fiscal capex will be higher and we will give guidance when our internal budgets are approved,” Madan added.
Revenues to the tune of nearly 70% of Escorts Kubota comes from the agricultural machinery segment while the balance comprises construction equipment, railway equipment and others.
The agricultural machinery segment revenue performance during the first half of the year was flat due to a flattish volume graph in domestic tractors at 45,700 units and a 35% fall in tractor exports at 2,900 units. India’s tractor volume fell nearly 4% during the first half of this year to 470,000 while exports dipped 29% to 50,100 units.
Domestic tractor demand is largely dependent on the high crop yield and favourable monsoon, which were uneven due to the flood situation in many parts. The southern market has experienced a decline in monsoons compared to the northern market, which has better irrigation facilities.
“Low subsidies from the government also added to the woes. As a result, the adverse product mix has restricted the full realization of the price hike. Escorts Kubota’s focus is primarily on high-HP tractors, which are currently in lower demand than low-HP tractors,” said a report by Geojit.
Growth in the company’s construction equipment business has beaten growth of that of the industry. While the industry’s volumes in product segments that Escorts operates in during the April-September period grew by 34%, Escorts volumes surged by 57%.
The growth is largely coming from the speed of the projects, the government’s urgency on completing infrastructure projects and their commitment to fund these projects.
“At the same time there is a performance linked incentive for contractors also to finish the job in time to get rewarded. So, this is fuelling the overall growth in construction equipment. The rest of the year will look similar to what we have seen in the first half of the year,” said Sanjeev Bajaj, chief executive officer, construction equipment business, Escorts Kubota.Escorts Kubota cuts capex for FY24 by over Rupees 100 crore.
