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
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
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
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.
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.
Chairman and Managing Director