Positive customer sentiment & new export opportunities to strengthen the core business.
Escorts Limited (Escorts) is one of India’s leading engineering conglomerates. The company manufacture best-in-class equipment for agriculture, infrastructure and railways. Ever since inception in 1948, it has played an important role in helping shape the country’s socio-economic progress.
Escorts has multi-product business with a strong, differentiated proposition and distinguished brands. The company benefits from its cross-business synergies, in-house R&D expertise, collaborations with global technology leaders, pan-India outreach. Escorts has more than 1,000 dealers, stockists and distributions. The company has 1,200 above Sales and Service outlets.
The pioneer of farm mechanization in India, Escorts Agri Machinery (EAM) has in the last seven decades, committed itself to enhanc-ing India’s agricultural productivity and add value to the farmer’s life. Escorts currently provides technologically superior range of 22 HP to 80 HP tractors with under two star brands - Farmtrac and Powertrac. With a growing network of over 800 customer touch-points, Escorts Agri Machinery ensures the satisfaction of its customer base of over 14,00,000 and also promises maximum uptime of their tractors and equipment.
Infrastructure development in India is a challenge transformed into opportunity, by the company through Escorts Construction Equipment (ECE). The company provides equipment for material handling, road building, earth moving and other services, address-ing the large national opportunity with a comprehensive basket of products. Its product mix meet the growing requirements of the country's infrastructure development, mining, realty, and other sectors.
Escorts’ Railway Equipment Division (RED) possesses a rich, multi-decade experience in the Manufacturing of critical railway compo-nents. The division (operationalized in 1962) is one of the oldest such units in the country, partnering the Indian Railways in its mod-ernization journey. The division is a market leader across all its product offerings. RED develops cutting-edge technology products in a state-of-the-art research and design facility and through collaboration with leading technology providers.
Escorts & Kubota Joint Venture Expansion Plan: Escorts formed a joint venture (JV) with Japan's Kubota Corporation to produce high-end tractors for domestic as well as export geographies. The joint venture company will invest about INR 300 crore to create initial capacity of 50,000 tractors in India. The company’s management has set the target to start production from new plant around Q3FY21.
Synergy between Escorts & Tadano Joint Venture: Escorts entered into a JV with Tadano, Japan’s biggest and world’s leading mobile crane manufacturer to manufacture Rough Terrain (RT) and Truck Cranes (TC). Tadano is one of the world’s leading manufacturers of mobile cranes. Escorts has also entered an agreement with Korea’s Doosan In-fracore. Doosan is a global leader in excavators, articulated dumptrucks and wheel loaders. Doosan would sale and service of its products in India through Escorts.
End user Industry tailwinds to drive growth: The agri economy benefitted from normal rainfall in FY20 (rains were at 110% of LPA). Further, initial forecasts in FY21 suggest that monsoons will be normal as well - in its first long-range forecast for Southwest Monsoon 2020, the India Meteorological Department (IMD) has predicted a normal season with rainfall at 100% of the Long Period Average (LPA). Good rainfalls likely for two consecutive years will be beneficial for agri production. As monsoons are expected to be normal in FY21E as well, we expect that tractor sales will be relatively less impacted (as tractor sales are correlated with monsoon) by the COVID led disruption - sustained agri production and favorable government policies will cushion demand for the same.
Covid 19 impact: We believe that due to Covid-19 led lockdown there was force closure of Auto dealers and manufacturing units. But we have observed that Auto dealers and Auto manufacturing units have become operational since month of mid-May 2020. In May 2020 tractor volumes have recovered very well in anticipation of normal monsoon and we expect demand for tractors to be strong in upcoming months. Hence we expect there would be minimal impact of Covid-19 and sustained agri production and favorable government policies will cushion demand for the same.
Unfavourable monsoon: Indian agriculture business completely depends upon the monsoons every year. Company has seen pressure in past when there was deficit in monsoon for a particular year. Tractor sales are correlated to monsoon.
Slower recovery in demand: Slower than expected pickup in auto segment, may harm volumes of company.
|Particulars||Mar-17||Mar-18||Mar-19||Mar-20||Mar-21 E||Mar-22 E|
|Profit Before Taxation & Exceptional Items||256.45||515.58||712.18||648.06||677.58||776.86|
|Exceptional Income / Expenses||-38.16||-6.76||10.91||-9.22||0.00||0.00|
|Profit Before Tax||218.29||508.82||723.09||638.84||677.58||776.86|
|Provision for Tax||57.85||164.10||238.18||153.30||169.40||194.21|
We believe the equity infusion by Kubota will strengthen the balance sheet and will provide multiple growth avenues for Escorts – both in India as well as internationally. We expect Escorts to outperform in Auto Industry on the back of onset revival across tractor industry, better traction from company’s railway equipment division. Hence we remain positive on Escorts limited on a long term perspective.