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From the Chairman’s desk
Our annual stakeholder reporting is aligned to our unwavering commitment to contribute to the building of national infrastructure and community elevation by developing indigenous solutions for Indian farming, construction and railways. We, at Escorts, have a promise to deliver on our stakeholder commitments and position your Company’s thought leadership globally.
Encouraging overall growth
2018-19 was an impressive year for your Company, achieving Rs. 6,196 crores in turnover. It is up by 23.5% vis-a-vis Rs. 5,016 crores in the previous fiscal, led by double-digit growth across all segments. Our tractor volumes went up by 19.9% to 96,412, as compared to 80,417 in the previous fiscal, emerging as the fastest growing tractor company in FY 2018-19.
Our construction equipment volumes grew by 23.5% to 5,544, as compared to 4,486 in the previous fiscal.
We recorded our highest-ever EBITDA of Rs. 733.4 crores in the year, up by 31.6% vis-a-vis Rs. 557.2 crores in the previous fiscal. Our EBITDA margin now stands at 11.8% as against 11.1% in previous fiscal.
Our EBIT margin has gone up by 100bps to 11.8% against 10.8% in the previous year, in line with our guidance for this year. Finance costs declined by Rs. 10.1 crores to Rs. 18.5 crores, as against Rs. 28.6 crores in the previous fiscal. Our total debt outstanding as on March 2019 is Rs. 277 crores. It has increased due to a rise in working capital requirements. Net debt, however, continues to remain negative at 200 crores.
In line with our Vision 2022, we have gained market share across all major states. Our share in the strong markets went up by 70bps and in opportunity markets by 120bps, resulting in an overall domestic market share of 11.8%, as compared to 10.8% in the previous fiscal. Our market share for the quarter ended March 2019 was at 15%, a rise of 191bps, as against 13.1% in the corresponding period last year.
Our export volumes grew by 56.7% to 3,089 tractors vis-a-vis 1,971 tractors in the previous fiscal, driven by new product introductions and greater market penetration.
Strategic alliances and global collaborations
Over the years, Escorts has demonstrated tremendous grit and commitment in delivering on its promises to stakeholders. We did not just deliver strong business performance; our aspiration to be a global organisation of repute and leadership inspired us to seek strategic alliances for growth and expansion across geographies.
In yet another stepping stone towards global leadership, your Company has collaborated with Kubota Corporation, Japan’s biggest and the world’s leading tractor manufacturer, for the joint manufacturing of high-end value-oriented utility tractors for domestic and export geographies.
The JV will leverage ahead-of-the-curve Japanese technology from Kubota and indigenous engineering excellence of Escorts to cater to an expanding market. aimed at global leadership. This will be made possible by establishing a new common manufacturing line with an initial capacity of 50,000 tractors, thereby increasing our overall annual capacity to over 1,50,000 tractors.
As Kubota opens its worldwide channel for our products and brings with it lessons on global market supremacy, we will have a larger international playing field, offering us enormous opportunities to exponentially grow our international footprint. Both the companies will also share with each other their technology platforms for mutual growth, as well as focus on technology and process excellence integration.
I am happy to share that your Company has also announced a JV with Tadano Group, Japan’s biggest and world’s leading mobile crane manufacturer, to manufacture rough terrain cranes and truck mounted cranes. The JV will strengthen your Company’s technology leadership and market presence in the material handling equipment space.
The JV will leverage the cost-effective frugal Indian engineering excellence of Escorts and world-leading Japanese technology from Tadano to cater to an expanding market for heavier capacity and sophisticated Truck & Rough Terrain Cranes in the 20 to 80 tonnage categories. We expect to take a leading position in the high-tonnage crane segment in the medium to long term.
Opportunities in the construction and railway segments
If we look closely at the construction equipment segment, we find encouraging momentum. Our volumes of Backhoe Loaders, Pick ‘n’ Carry cranes and compactors went up by 22.6% in FY 2018-19. Cranes were the most prominent gainers in FY 2018-19, with 26% growth, followed by Backhoe Loader that grew by 22.2% and compactors that grew by 20.5% in FY 2018-19. The total volumes manufactured and traded products increased by 23.6% to 5,544 against 4,486 in the previous fiscal.
Our EBIT margin for the year ended March 2019 stood at 3.6%, up by 166bps vis-a-vis 1.9% in the previous fiscal. Barring challenges on account of financing issues and an uncertain global environment, we expect to improve our margin in FY 2019-20. Going forward, we also expect that our construction equipment business will continue to grow in mid-teens in the medium- to long-term and; we will be launching an exciting array of innovative products.
Coming to the railway division, our revenue of Rs. 394.1 crores went up by 37.5%, as against Rs. 286.6 crores in the previous fiscal. Our EBIT margins went up by 600bps from 19.9% vis-a-vis 13.9% in the previous fiscal. Our order book for this division stood at more than Rs. 490 crores, which will get executed in the next 14 to 15 months. Going forward, we expect the railway equipment segment to grow at 15-20%. RED collaborated with Yujin Machinery Ltd., South Korea, for high speed brakes and metro breaks system.
Organisational restructuring for growth
I feel privileged to lead the young, dynamic and committed workforce.
We have one of the most capable teams standing on ground to help us achieve our Vision 2022 with their sheer focus and faith. It entails a larger alignment and empowerment of internal leadership to take on larger responsibilities and diverse roles.
Aligned to the thought, your Company announced some structural changes.
We have created the position of an Executive Director, a position on Board, who will be responsible for group level business growth and profitability, Mergers and Acquisitions (M&A) and other inorganic opportunities.
Also, the Chief Executive Officers (CEOs) of respective businesses have been empowered to drive business growth. Our centralised R&D under the Chief Technology Officer will develop technology breakthroughs by leveraging cost optimisation.
Innovation as a differentiator
Your Company has always strived to derive an edge in the way we work and develop technological breakthroughs for customers. Innovation thus becomes a key differentiator of us. Esclusive 2018, our annual innovation platform offered a latitude of disruptive offerings.
These comprise India’s first autonomous driverless tractor, our new series of safe cranes, India’s first high-end locomotives brake electronic solutions and an array of smart agriculture implements.
Escorts collaborated with seven technology giants namely Microsoft, Reliance Jio, Trimble, Samvardhana Motherson Group, WABCO, BOSCH and AVL. The partnerships and relationships will enable development of a range of farm machines with electric transmissions, autonomous applications, remote vehicle management, data-based soil and crop management, and sensor-based guided farm applications.
In addition to our innovative line-up on products, we also invested in our post sale service excellence and created technology integrations for a 24X7 Care Button for customer service across an entire range of Powertrac and Farmtrac tractors, becoming the first Indian tractor company to do so. Now our customers can press this special button on the tractor for any technical or other help and receive a call back from a trained company engineer within two minutes. Going forward, we will be launching new innovative products to help enhance the productivity and earnings of our customers.
We also launched a unique and global first online tractor sales platform, announcing our first-of-its kind digital interface tractor DIGITRAC. It is integrated with predictive forecasting, agriculture information intelligence system and agri updates for farmers through an app-based interface.
We have received an overwhelming response to the platform.
Your Company has a deeply embedded innovation culture. It is well positioned to develop indigenous engineering solutions for agriculture and infrastructure and will also create a futuristic ecosystem of innovative and disruptive technologies within Escorts. We founded Rajan Nanda Innovation Lab (RNIL) to serve this objective and help create our technology future by aggregating best practices of the world. RNIL will continue to collaborate with advanced technology centres, academic excellence, research intellect and innovation labs which have created worldwide benchmark innovations in agriculture, construction equipment and advanced railways domain.
Emerging businesses disrupting the market
Indian farming is still dominated by low and marginal farmers and weak access to advanced agri technologies. There is a huge requirement and opportunity to strengthen and provide service models, which will empower the famers through a strong mechanisation and technology-driven agri-productivity.
Your Company has launched various initiatives like Escorts Crop Solutions (ECS), rental farming services with a range of tractors and implements, aggregation of tractor usage with TRAXI service model and readying a platform for genuine spare parts delivery under Smart Parts project.
TRAXI has already reached 1,500 villages cutting across 2,600 farmers and creating 600 agri-preneurs.
Our Crop Solutions’ Hydroponics is one of the unique initiatives in India, helping rice farmers to increase their productivity by 10%. ECS aims to become India’s most reliable farm mechanisation solutions provider with end-to-end, advanced, affordable and pay-per-use solutions, as well as the largest fleet of track harvesters, paddy transplanters and other equipment. Under ECS we have already serviced 10,000 paddy farmers delivering 30,000 hours of farm mechanisation services.
Macro trends ahead
Recent election results have ensured that we have a stable government in the centre with a renewed focus on agriculture, construction and railways. Escorts is well prepared to maximise this opportunity. On the full year basis, the domestic tractor industry growth is driven by monsoon and government policy initiatives about rural markets.
Further, there is a pan-India positive focus towards agriculture and infrastructure segments, which will usher in policies and facilitate the respective segments, benefiting consumption and drive business opportunities for your Company.
Upholding good corporate governance practices
We follow a culture built on our principles of ethical business conduct.
In accordance with the statutory requirements for listed companies, your Company has taken a number of corporate governance initiatives, including adoption of a new Code of Business Conduct which amplifies our stand on Corporate Governance, Dividend Distribution Policy, Policy for Preservation of Records, Code of Conduct for Insider Trading and Prevention of Sexual Harassment (POSH), among others.
We are committed to assist the organisation in adhering to industry best practices for accomplishing its business objectives; while at the same time helping your Company formulate policies to find better balance between the interests of its many stakeholders, such as shareholders, management, patrons, providers, investors, government and the public at large.
Quality excellence remains our consistent priority. We will continue to reinforce a culture of ownership and accountability in our teams to translate our vision into reality. Our strengthened distribution, domestic and export geographies are expected to extend reach and service excellence to address our customers’ requirements.
As a future-focused enterprise, our priorities comprise cost optimisation, adopting digitisation, and simplifying our operating architecture and process-bound operations.
Under the able guidance and direction of our strong and widely experienced Board, we will create a strengthened roadmap of profitability, expansion and brand repute. Human resource training and development remains a critical focus area for your Company; and we will continue to invest in upskilling our talent pool to realise our vision.
Your Company will also be pursuing inorganic opportunities through M&A and alliances to strengthen growth and profitability and build an innovation pipeline.
Focused on holistic wellbeing
Your Company today is aptly positioned to achieve its Vision 2022 and beyond. The entire Board, the leadership team and each Escortian is purpose driven and committed to high performance and corporate vision.
Your faith and belief in us will strengthen our confidence to create wealth for every stakeholder and help the nation by elevating communities.
‘Nation Matters’ will always be at the core of our existence.
Chairman and Managing Director