Escorts

The Directors have pleasure in presenting the Sixty Second Annual
 Report and Audited Accounts of your Company for the year ended on 30th
 September, 2007.
 
 FINANCIAL RESULTS
                                                         (Rs. in Crores)
                                                 Year ended   Year ended
                                        30th Sept.2007    30th Sept.2006
 
 INCOME & PROFIT/(LOSS)
 
 1.    Sales & Business Income               2,102.15         1,780.98
 2.    Total Expenses                        1,992.65         1.673.67
 3.    Profit/(Loss) before Interest, 
       Depreciation,                
       Amortisation & Exceptional Items (1-2)  109.50           107.31
 4.    Interest & Finance Charges (Net)         68.95            84.95
 5.    Cash Profit before Taxation from Business
       Operations (3-4)                         40.55            22.36
 6.    Depreciation & Amortisation              52.52            47.05
 7.    Profit/(Loss) before Tax & Exceptional
       Items (5-6)                             (11.97)          (24.69)
 8.    Income from Investments/
       Exceptional Items (Expenses)             (5.36)           59.13
 9.    Tax                                     (10.89)           15.44
 10.   Profit after Tax                         (6.44)           19.00
 
 You will be happy to note that your Company has increased its sale of
 tractors from 47,612 to 53,235 units registering a growth of 12% and
 the turnover has increased from Rs.1781 crores to Rs.2102 crores this
 year registering a growth of 18%.
 
 There has been sharp increase in input costs due to increase in the
 prices of base metals. The same could not be recovered fully due to the
 competitive market conditions, thereby, affecting margins. It is a
 matter of concern that this overhang of increase in input costs
 continued throughout the year. The Company is mitigating this difficult
 situation by adopting various measures including aggressive cost
 cutting, business process improvements and product re-engineering. The
 Company has substituted its high cost short term debts with long term
 loans and reduced overall borrowings which will have a positive impact
 in the coming years.
 
 DIVIDEND
 
 Due to inadequacy of profits, Board has decided not to recommend any
 dividend for the year ended 30th September, 2007.
 
 SHARE CAPITAL
 
 Promoter Group has subscribed to and have been allotted 36,11,610
 Equity Shares of Rs.10 each at a price of Rs.83.79 per Equity Share
 aggregating Rs.30.26 crores in exchange for the share warrants issued
 to them in March 2006 in terms of Preferential Issue Guidelines of
 Securities and Exchange Board of India (Disclosure and Investor
 Protection) Guidelines, 2000.
 
 During the year; your company issued 36,11,610 share warrants to the
 promoter group in accordance with the Preferential Issue Guidelines
 which are exchangeable with equal number of Equity Shares at a price of
 Rs. 124.05 per share on or before 22nd May, 2008.
 
 Your Company has during the year made Placement of 77,94,910 Equity
 Shares of Rs.10/- each for cash at issue price of Rs.112/- per Equity
 Share aggregating Rs.87.30 Crores and 61,455 Secured Convertible
 Debentures of Rs.10,000/- each (SCDs) for cash at par aggregating Rs.
 61.45 Crores to the Qualified Institutional Buyers (QIBs) in terms of
 the SEBI Guidelines. Part A of SCDs of Rs. 100/-each was converted into
 54,870 Equity Shares @ Rs.112/- per Equity Share immediately on
 allotment and Part B of SCD of Rs.9,900/- each is redeemable as per the
 terms of the issue within 7th to 42rd months of the allotment.
 
 Consequent upon the aforesaid allotments the paid up share capital of
 your company was Rs.83,69,36,300 as on 30th September, 2007.
 
 Honble High Court of Delhi has directed your Company to place shares
 of Escorts Limited @ Rs. 94/- per share, face value of which is Rs
 10/-, to the tune of Rs. 7 Crores at the disposal of the Committee
 appointed by the Honble Court on 19th October, 2006 read with order
 dated 18th December, 2006, to provide relief to certain depositors of
 Escorts Finance Limited who have been identified as hardship cases by
 the Committee. Your Company has complied with the directions and
 allotted 7,44,681 Equity Shares to the Court appointed Committee on
 12th December, 2007.
 
 Management Discussion and Analysis
 
 1.  Overview
 
 (A) Agri Machinery Business
 
 The Agri Machinery Business, which is the main business of your
 Company, has demonstrated strong performance for the, second year in a
 row in its path to recovery. The strong performance is evident from
 growth of 12% in sales volume from 47,612 to 53,235 tractors.
 
 a) Business Strategy
 
 Your Company successfully leveraged business strategy it had launched
 year before to attain growth in both domestic and- international
 markets. Your Company has focused on grass root market research and
 activity so as to be able to deliver true product value to various
 consumer segments. This effort is ongoing and is expected to continue
 to deliver results. The concurrent action plans of product development
 to address the latent customer and market needs at profitable
 contributions will facilitate improved performance in the coming years.
 
 b) Sales & Marketing
 
 The exercise undertaken in repositioning our both Farmtrac & Powertrac
 Brands in a complimentary manner was successfully implemented in the
 current year. The emphasis on Reach and Access continued to be
 pronounced, resulting in your Companys dealer network being amongst
 the largest in the Indian tractor industry. Focus was on strengthening
 the Channel in a multi-dimensional manner in terms of financial
 fundamentals, grass root level reach, After Sales Service and parts
 operations. The strong product offering through this strengthened
 channel enabled us to buck the trend and post a growth of 13.4% in a
 domestic market that de-greyv by 0.2%.
 
 c) Exports
 
 Farmtrac is a preferred brand in several leading global markets
 including America, Poland and South Africa. Alongside seeking out
 growth and visibility in international markets, your Company intends to
 constantly consolidate its efforts and activities in international
 markets to achieve specific volume. Exports margins have been affected
 during the year due to the steep appreciation of Rupee vis-a-vis US
 Dollar. Your Company is focusing on markets benchmarked to the Euro so
 as to be able to withstand any further devaluation in the US Dollar.
 
 d) Materials Management .
 
 The focus has been on Vendor Development and de-bottlenecking of
 capacity issues at existing vendors. Creation of alternative vendors
 has allowed us to focus on competitive cost and delivery efficiency.
 The accent has been on nurturing vendor partnerships and development of
 long term Win - Win partnerships with strategic suppliers. All these
 mark a shift in procurement culture from Transactional to
 Strategic.  Additionally, there has been a tremendous stress on
 support for value engineering exercises.
 
 e) Manufacturing Operations
 
 Production at 52,585 scaled a new high. Your company is now capable of
 producing 98,940 Tractors per annum on a 2 shift basis i.e. a 37%
 increase over the previous capacity of 72,000 Tractors per annum from
 the same assets. This is concurrent with flexible manufacturing norms
 allowing model mix inter-changeability across plants and flexibility in
 engine assembly to enable the manufacture of new advanced engines.
 
 With the objective of delivering new products and improvement in
 operations for existing products, several major projects have been
 initiated like 
 
 * New machining centre for transmissions which will enable the launch
 of a brand new series Of tractors in higher HP range.
 
 * New facility for Cylinder block machining and Cylinder head assembly
 for engine manufacturing.
 
 Your Company has during the current year intensified initiative of
 Quality, both pre-delivery as well as in the field, so as to ensure
 total customer satisfaction. Your Company has cascading Total Quality
 Management as a culture which ensures continuous improvement in
 Quality, Productivity and Processes.
 
 f) Knowledge Management
 
 Escorts Knowledge Management Centre drives business in its quest to
 capitalize on national and international opportunities in mechanized
 farming through constant innovations in technology and development of
 new cost effective products.
 
 It has expertise in the following areas:
 
 Industrial design-styling, computer aided engineering and design,
 Project Management, Reverse Engineering, Metrology, Fatigue Testing,
 Engine Testing, Materials Engineering, Field Data Acquisition; Noise,
 Vibration & Harness, Tractor testing. This, in conjunction with robust
 market sensing systems, enables your Company in providing product
 offerings in line with the latest needs of the-customers.
 
 g) Industry Outlook
 
 The key drivers of the Industry, namely monsoon, crops and minimum
 support price, coupled with the Governments focus on agriculture
 development with special emphases on irrigation, yield improvement and
 increasing area of cultivated land augurs well for the Tractor
 Industry. Banks are likely to enhance credit disbursement in line with
 the Governments policy of increasing Rural and Farm Credit. Your
 Company is well positioned at the development manufacturing and market
 end to achieve sustained growth and deliver maximum value to the
 customer. Your company is repositioning its products like any other
 Automobile manufacturer to create a niche for itself.
 
 The Indian Tractor Industry, after having witnessed strong double digit
 growth for three consecutive years, slowed down this year with a
 nominal growth of 2.2% in the period October 2006 - September 2007. The
 domestic market de-grew nominally by about 0.2% while the export market
 grew by 27.5% resulting in an overall growth of 2.2% for the period
 October 06 to September 07. This marginal growth was mainly on account
 of change in the norms of tractor financing by the PSU banks, lower
 minimum support prices and irregular scattered rains.
 
 (B) Auto Suspension Product Business
 
 The two-wheeler industry, in India, in volume terms, contributes
 three-fourth of all vehicles sold in the country. Two-wheeler sales in
 India has slowed down in the last few months. In the first seven months
 of this financial year, domestic sales fell by nearly 9%. Motorcycles
 and step-through sales, that account for 80% of two-wheelers sold in
 the country, witnessed 14% fall in sales, putting pressure on your
 Companys Auto Suspension Products Division, manufacturing shock
 absorbers and other components. Though the down side appear to be
 temporary.  your Company has embarked on entering into the
 manufacturing of shock absorbers for commercial vehicles which will
 improve the capacity utilisation and margins of this business.
 
 (C ) Railway Equipment Business
 
 Riding on the growth of Indian Economy, Indian Railways have turned
 around from a cash deficit to a cash surplus situation (Rs.20,000
 crores for 2006-07, before dividend). Indian Railways is poised for a
 massive growth, with focus on safety and technology upgradation of
 Rolling stock, infrastructure and signaling sectors. To spur this
 growth, Indian Railways has firmed up Rs.2,51,000 crore capex plans for
 the next 5 years for creating the proposed Dedicated Freight Corridors,
 doubling of lines, electrification, gauge conversion and Rolling
 Stocks.
 
 Indian Railways has clocked a growth of 9% in freight and 8% in
 passenger traffic over last 3 years. The operation of Indian Railways
 is poised to grow by at least 11-12% per annum-through induction of
 50,000-60,000 Freight cars, 3500-4000 Diesel and Electric Locos, 25000
 Coaches and Electric Multiple Units and dedicated Freight Corridors in
 the next 5 years.
 
 Your Companys Railway Equipment Division has been associated with
 Indian Railways for the last 45 years and is respected as one of the
 most trusted companies for product development, quality standards and
 delivery commitments, catering to a wide range of safety product
 requirements of Indian Railways. This Division has introducednew
 technology and products exclusively tailor made for Indian Railways to
 suit local working conditions, after sourcing initial technologies from
 some of the Worlds leading manufacturers like Knorr Bremse,
 Rhinemetall, Scharfenberg - Kupplung, ICER, Vulcanite, Holland Co. etc.
 
 Apart from supplying equipments, the-Railway Equipment Division has
 been carrying out installation and conversion and retro-fitment jobs as
 well.
 
 2. RISKS & CONCERNS
 
 The major risk associated with the tractor industry continues to be the
 dependency of the Agri Economy on normalcy of monsoons since more than
 two thirds of the sowing is dependant on rain and availability of
 credit, especially from PSU banks. The momentum of the last monsoon
 which was normal should see the industry through for most part of the
 year October 2007 - September 2008. Similarly, with the growth of the
 rural economy being atop priority agenda for the Government, PSU banks
 are expected to extend financing in line with the Governments policy
 of increased credit allocation to the Rural and Farm Sector. The
 continuing appreciation of the Rupee continues to be a risk that needs
 to be managed. Your Company has balanced its market exposures to those
 with similar appreciation in order to protect product profitability.
 
 3. OPPORTUNITIES AND THREATS
 
 The tractor density per hectare continues to be low in India in
 comparison to Western Standards of the US and Europe. This indicates
 the relatively lower level of Tractorisation - and thereby ample
 scope for growth. The increasing proliferation of tractor usage for
 specialised applications and wasteland development adds another
 advantageous dimension to the available opportunities for growth.
 International markets continue to present significant opportunities in
 virgin markets which your Company is actively pursuing. This growth
 however would have its reat of managing multi locations internationally
 and this is a skill the management team is constantly investing in.
 
 4.  INTERNAL CONTROL SYSTEM
 
 Your Company has an appropriate internal control system for business
 processes with regard to efficiencies of operations, financial
 reporting and compliance with applicable laws and regulations etc.
 
 5. (A) HUMAN CAPITAL AND INDUSTRIAL RELATIONS
 
 Your Company believes that human resources are key to the success of
 business.
 
 (B) INDUSTRIAL RELATIONS
 
 Employees Relations remained cordial throughout the year at all units
 of your company.
 
 EMPLOYEEE STOCK OPTION SCHEME
 
 With a view to motivate and retain employees, your Company has
 instituted an Employee Stock Option Scheme 2006(ESOS), in accordance
 with the guidelines framed by SEBI.
 
 Disclosure pursuant to the SEBI (Employees Stock Option Scheme and
 Employees Stock Purchase Scheme) Guidelines, 1999 is enclosed at
 Annexure-A to the Directors Report for the year ended 30th September,
 2007.
 
 PARTICULARS OF EMPLOYEES
 
 Information in accordance with provisions of Section 217(2A) of the
 Companies Act, 1956 read with the Companies (Particulars of Employees)
 Rules, 1975 as amended regarding employees is annexed to this Report.
 However, as per the provisions of Section 219(1)(b)(iv) of the
 Companies Act, 1956, the Report and Accounts are being sent to all
 shareholders of the Company excluding the aforesaid information. Any
 shareholder interested in obtaining such particulars may write to the
 Senior Vice President - Law & Company Secretary at the Registered
 Office of the Company.
 
 6.  RISK MANAGEMENT
 
 Risk Management framework entails regular review of risk status and
 risk exposure in the areas of business, operations, Foreign Exchange
 etc. by Audit Committee and the initiatives taken by the company to
 mitigate material risks.
 
 CAUTIONARY STATEMENT
 
 Management Discussion and Analysis contains forward looking statements
 which may be identified,by the use of words in that direction or
 connoting the same. Actual results, performance or achievements could
 differ materially. The company assumes no responsibility to publicly
 amend, modify or revise the same on the basis of any subsequent
 development of information or events.
 
 SCHEME OF COMPROMISE AND ARRANGEMENT
 
 Your company has filed Scheme of Compromise & Arrangement (Scheme)
 in.the Honble High Court of Delhi to bail out fixed deposit holders of
 Escorts Finance Limited. The Scheme was approved by the Shareholders,
 Secured and Unsecured Creditors of your Company and the Fixed Deposit
 holders and Secured Creditors of Escorts Finance Limited on 10th May,
 2006 and 5th May, 2006 respectively in the court convened meetings. The
 approval of the scheme by the court is awaited.
 
 DIRECTORS
 
 Mr. Nikhil Nanda, who was acting as the Executive Director and Chief
 Operating Officer of your Company, was promoted as Joint Managing
 Director of the Company w.e.f. 19lh September, 2007 for a period of
 five years.
 
 Dr. M.G.K. Menon, Director, retires by rotation at the ensuing Annual
 General Meeting of your Company, and being eligible, offers himself for
 reappointment.
 
 CONSERVATION OF ENERGY, TECHNOLOGY ABSORPTION, FOREIGN EXCHANGE
 EARNINGS AND OUTGO
 
 Information required under Section 217(1)(e) of the Companies Act, 1956
 read with Companies (Disclosure of particulars in the Report of the
 Board of Directors) Rules, 1988 is given in Annexure B and forms an
 integral part of this Report.
 
 CORPORATE GOVERNANCE
 
 Your Company reaffirms its commitment to the good corporate governance
 practices. Pursuance to Clause 49 of the Listing Agreement Corporate
 Governance Report and Auditors Certificate regarding compliance of
 conditions of Corporate Governance are enclosed at Annexure C and forms
 an integral part of this report.
 
 CONSOLIDATED FINANCIAL STATEMENTS
 
 Pursuant to Clauses 32 and 50 of the Listing Agreement, your Company
 has prepared Consolidated Financial Statements as per the Accounting
 Standards applicable to the Consolidated Financial Statements issued by
 the Institute of Chartered Accountants of India. Audited Consolidated
 Financial Statements along with the Auditors Report are annexed with
 this Report.
 
 SUBSIDIARY COMPANIES
 
 Particulars required under the provisions of Section 212 of the
 Companies Act, 1956 in respect of the subsidiary companies are
 appended.
 
 AUDITORS
 
 M/s. S.N. Dhawan & Co., Chartered Accountants, Auditors of the Company,
 retire at the ensuing Annua1 General Meeting and are eligible for
 reappointment. The observations of the Auditors in their Report on
 Accounts read with the relevantnotes to accounts are self explanatory.
 
 DIRECTORS RESPONSIBILITY STATEMENT
 
 As required under Section 217 (2AA) of the Companies Act 1956, your
 Directors state that:
 
 i.In the preparation of Annual Accounts for the year ended 30th
 September, 2007, the applicable accounting standards have been followed
 along with proper explanation relating to material departures;
 
 ii.  The accounting policies selected and applied are consistent and
 judgement and estimates made are reasonable and prudent
 
 so as to give a true and fair view of the state of affairs of the
 Company at the end of the financial year and of the profit or loss of
 the Company for that period;
 
 iii.  Proper and sufficient care has been taken for maintenance of
 adequate accounting records in accordance with the provisions of the
 said Act for safeguarding the assets of the Company and for preventing
 and, detecting fraud and other irregularities; and
 
 iv.  The Annual Accounts have been prepared on a going concern basis.
 
 PUBLIC DEPOSITS
 
 The Company has not accepted / renewed any Fixed Deposit during the
 year. 2669 Fixed Deposits aggregating Rs..5.06 crores matured but
 remained unclaimed as on 30th September, 2007. Subsequently, out of the
 above, 546 Fixed Deposits aggregating Rs. 1.22 crores have been repaid
 till date.
 
 ACKNOWLEDGEMENT
 
 Your Directors wish to thank the Customers, Dealers, Lenders,
 Financers, Vendors, the Central and State Governments, and employees
 for their continued support and commitment to the Company.  
 
                                               On behalf of the Board
 
                                                          Sd/-
 Place: Faridabad                                    RAJAN NANDA
 Date : December 26, 2007               Chairman & Managing Director