Operating margins during the quarter fell 50 basis points to 11.6%. Bharat Madan, Group CFO, Escorts said margins contracted as demand for lower horse power (HP) tractors was more than higher HP range.
Tractor maker Escorts on Tuesday reported a 7.8% year-on-year (y-o-y) increase in net profit at Rs 121.35 crore for the January-March quarter, lower than Bloomberg consensus estimates of Rs 135.5 crore. The lower-than-expected profit was a result of subdued volume growth and weak operating performance. Analysts said volume growth of tractors was affected due to seasonality, lower rabi crop sowing and weakening cycle.
Operating margins during the quarter fell 50 basis points to 11.6%. Bharat Madan, Group CFO, Escorts said margins contracted as demand for lower horse power (HP) tractors was more than higher HP range. “In major states like Bihar, MP and UP, while volumes of high power tractors were less in demand, lack of finance availability also impacted sales,” Madan told FE. Besides, price hikes taken in the range of 4-6% in Q4 might also have impacted to some extent, he said.
The Faridabad-based firm’s earnings before interest, taxes, depreciation and amortisation (Ebitda), however, grew 9.2% at `189.8 crore in Q4FY19. While the tractor volume growth slowed down to 6.7% y-o-y in Q4, against nearly 15% witnessed earlier, volumes of construction equipment vehicles fell 5.6% y-o-y. Madan said there has been some slowdown in infrastructure activities due to the election season and there could be some pick up in demand in the second half of this fiscal.
According to analysts, liquidity constraints, lower-than-expected rabi crop sowing and poor sentiments have impacted tractor sales during the second half of 2018-19. “Tractor volume growth decelerated as muted farm sentiment in key markets acted as a major speed-breaker,” analysts at Motilal Oswal noted.
Revenue from operations during Q4 grew 13.6% y-o-y to Rs 1,631.7 crore, slightly below analysts estimates of Rs 1,670 crore. Revenue rose primarily from the tractor segment (12.5% y-o-y).
Analysts at Kotak Institutional Equities (KIE) had earlier trimmed estimates of Escorts on account of lower volume growth and higher input costs. “We have cut our FY 2020-21 EPS estimates by 1-3% led by lower volumes and higher input cost,” they wrote.
Tractor sales growth slowed down to around 8% in FY19, against 22% growth in the previous fiscal (FY18). A high base was expected to impact the numbers slightly but the demand during the second half remained subdued and as a result the overall growth saw a downfall.
Madan expects the April-June quarter to remain flat as demand in April remained subdued and election related purchase postponements will continue till May. “Growth in Q1 should be flat as there will be only one month (June) to catch up, but one can expect a revival in the quarters after that,” he said.
Escorts has lined up a capital expenditure of about Rs 300 crore for FY20, which will be used in developing new products, network expansion and brand development. The company announced a dividend of Rs 2.5 per equity share of Rs 10 each for the financial year 2018-19.