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Escorts

BSE: 500495  |  NSE: ESCORTS  |  ISIN: INE042A01014  |  Auto - Tractors

Explore Escorts connections « Sep 06
Chairman's Speech Year : Sep '08
Dear Shareholder,
 
 The year 2007-08 has been one of the most significant for Escorts
 India. The seeds sown this year past will have fruits that will be
 harvested for a long time to come.
 
 Before we reflect on our momentous successes, we must take note of the
 environment in which we operated. The year 2007-08 was marked with
 severe economic strains of rampaging inflation, unprecedented fuel
 costs, tightening interest rates by the central bank in the first half
 and virtual cessation of farm loans in the second. If these were not
 enough, the farm economy slowed down and the government failed to
 increase support prices.
 
 In that mix, tractor prices which had to firm up to account for
 inflationary prices slid later in the year.  Sales slowed through the
 year, first, due to higher prices and later due to poor credit
 availability from public sector banks and the limited capacity of
 NBFCs, cooperative banks and regional banks to make up the deficit. The
 final straw came in the form of the global meltdown that made the rupee
 weaker, imports costlier and dampened exports.
 
 For the farming community, the year was significant for both the right
 and the wrong reasons. The government sought to ease the pain of many
 farmers by waiving their loans. That said, it failed to provide an
 adequate enough mechanism for the fallout for the banking community. In
 fiscal 2008-09, priority sector lending has failed to meet one third of
 its targets. Consequently, farm credit has gone through a huge squeeze
 in the past nine months. However, some semblance of normalcy is
 reappearing as it has become evident that it is rural India which is
 the most resilient in these recessionary times.
 
 Despite this grim economic setting, your company has ended the year
 with a strong, profitable showing, putting behind the years of
 struggle. For Escorts, the return to profits was a clear demonstration
 of your companys restored health and success of the revamp. Your
 company announced a profit of Rs. I1.87 crore on the back of a slew of
 strategies that has delivered higher domestic market share, improved
 earnings from a lower market base, structural reorganisation and
 greater cost and operational efficiencies.
 
 Escorts Limited has proven through its performance in fiscal 2007-08
 that the efforts to strengthen the fundamentals of the company, sharpen
 focus on core strengths, build value for customers and drive
 operational efficiencies have put the company on a profitable track. Of
 the many initiatives that were undertaken, the biggest contributor has
 certainly been the initiatives in revamping the economics of the
 business by focussing on cost compression. A slew of initiatives has
 resulted in a saving of over Rs. 100 crore by eliminating waste,
 working more efficiently, right-sizing the work force, reduction of
 held stock and negotiating better prices from our suppliers.
 
 AGRI MACHINERY BUSINESS
 
 Despite industry slowdown in tractor sales, Escorts Limited maintained
 its overall sales performance.  Domestic sales in particular
 demonstrated strong growth and Escorts captured incremental growth
 beyond the industrial volume of the market by adding niche products to
 the portfolio as also going up the value chain.
 
 The cost compression and rationalization exercise coupled with
 structural organization and improving operational efficiencies is
 reaping rewards for the company. The results are already encouraging
 and validate the entire exercise.
 
 Your company wants to expand its horizons to become a complete farm
 solutions provider from just being a tractor manufacturer. Our aim will
 be to develop solutions that will enhance agricultural productivity and
 improve quality of life in rural India.
 
 Your company has aggressive plans of further increasing the market
 reach and subsequently market share by offering price competitive
 models of global quality. This, backed by spare-parts & after sales
 service support deliveries, will help us deliver to our customers an
 overall satisfaction and success package for a long-term win-win
 relationship.
 
 Escorts is further increasing the market reach and subsequently the
 market share by offering price competitive models of global quality
 norms in terms of technology, performance and durability. Better
 marketing, innovative products, robust financial systems and controls,
 dealership penetration and greater emphasis on export markets will be
 the key pillars on which our growth strategies will be based.
 
 The agri machinery business registered strong growth in profitability.
 Right through the year, despite difficult market conditions, Escorts
 increased its market share. In the current economic situation, the
 agriculture sector with its relative insularity from the buffets of
 global financial collapse can provide India the necessary growth
 engine.
 
 CONSTRUCTION EQUIPMENT BUSINESS - ECEL
 
 The Construction Equipment Business has been recording a handsome y-o-y
 growth in its gross revenues in the financial year ending 31st March
 2007. The company topped it up further by registering an impressive 50%
 topline growth in the current year that ended on 31st March 2008.
 
 As one of the major milestones in its transformation journey, ECEL has
 just moved into its state-of-the- art and intelligent manufacturing &
 assembly facility in Ballabgarh, which spans a covered area of over
 250,000 sq. ft., spread over 15 acres land. This factory is equipped
 with contemporary capabilities and processes to facilitate a three-time
 increase in its production capacity for its existing as well as new,
 high quality products.
 
 ECEL has set its sights to an ambitious growth plan over the next five
 years, thanks to a slew of new product introductions as well market
 expansion strategies, which shall pan out from the beginning of
 calendar year 2009.
 
 However, given the recent global financial and economic turmoil, the
 tremors of which are being felt on the Indian economy, ECEL too faces
 growth challenges in the FY 2008-09 and the shorter term. In the first
 half of FY 2008-09, ECEL also had to contend with an unprecedented hike
 in the input costs, driven by steel.
 
 ECEL has been particularly impacted by the economic downturn and
 slowing down of the construction industry. Combined with the higher
 depreciation costs arising from its new plant, the impact is that much
 more. However, ECELs product quality, cost of production are of global
 standards and will drive business volumes with the recovery of the core
 sectors.
 
 ENGINEERING DIVISION
 
 The Engineering Division of your company comprises of Railway Equipment
 Division (RED) and Auto Suspension Products Division (ASPD).
 
 During the year 07-08 Indian Railways grew by approximately 10 % which
 gave our Railway Business a significant increase in our order book and
 billing. During this period your company could grow business in Air
 Brake, Brake blocks, Shock absorbers, couplers etc. and as a result of
 this RED business has grown by 24% over last year, while export
 business grew by 100 %.
 
 The Rudrapur plant which started production in the year 2005-06,
 contributed significantly to this growth.
 
 Indian Railway has embarked upon many ambitious projects of
 environmental protection and one of them is introduction of
 Bio-Degradable toilets in passenger coaches.
 
 The Auto Suspension business, automotive market in India in 2007-08
 remains static compared to 2006- 07. Our main customer in 2 wheeler
 segment has seen significant reduction in motorcycle production,
 affecting our domestic sales adversely.
 
 During the 2nd half of the year 07-08 prices of all Raw Materials
 increased by 20 % affecting our material cost. However, with
 initiatives on cost reduction from suppliers and price increase from
 customers, we could negate the effect of inflation considerably.
 
 Your company has taken many steps during 07-08 in developing new
 products, new customers and new markets both in Auto Suspension as well
 as in Railway business. On the strength of these initiatives we are
 confident of increasing our sales and contribution of Engineering
 Division significantly during 08-09, global meltdown not withstanding.
 
 IN CONCLUSION
 
 By enabling people to drive this change, we are well on our path to
 making Escorts a lean and efficient organisation. What we have today is
 a company that is strong enough to battle market headwinds.
 
 Today, we are far more focussed. We are constantly evolving and
 innovating, creating new products to suit market demands.
 
 On the back of our performance, better fundamentals and strong
 marketing drive, we commit to make your company even more profitable in
 the year closing September 2009 and with a better topline. I am hopeful
 that this year your companys overall performance on operating levels
 would exceed our best past years.
 
                                                           Rajan Nanda
                                        Chairman and Managing Director
Source : Religare Technova

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