THIS ANNUAL REPORT IS A TRIBUTE TO OUR LATE CHAIRMAN, MR. RAJAN NANDA, WHO DEDICATED HIS LIFE TO BRINGING THE BEST OF THE WORLD’S TECHNOLOGY TO INDIA AND ENGINEERING INDIGENOUS SOLUTIONS FOR INDIAN FARMING, CONSTRUCTION AND RAILWAYS. WHILE HE IS NO LONGER WITH US, HIS SPIRIT OF INNOVATION WILL ALWAYS MOTIVATE US TO DEVELOP TECHNOLOGIES FOR RURAL PROSPERITY AND NATIONAL DEVELOPMENT.
I WOULD LIKE TO TAKE THIS OPPORTUNITY TO THANK YOU ON HIS BEHALF FOR YOUR CONTINUED SUPPORT. IT IS YOUR BELIEF THAT WILL HELP ME TAKE THE LEGACY FORWARD AND FULFIL HIS DREAM OF ELEVATING ESCORTS TO AN INDUSTRY BENCHMARK.
Core philosophy and purpose
Escorts as an institution is a collective engineering effort with a focused vision. We are an agricultural company and an engineering company, and we are building a productive company to strengthen the nation. We are in the process of bringing the pedigree of technology focus, related to change and advancement. The opportunities, disruptions and changes that are taking place in the world, will accelerate progress and change the way we live and work. Embracing this new world order, we will continue to invest in our business with the right resources, tools and strengths - essentials to win in the future.
Our actions are aligned to our purpose of delivering encouraging outcomes across our business through relevant products, technology and innovation to create wide-ranging impact for diverse stakeholders. Therefore, whether it is helping farmers achieve their true potential, customising products for India’s infrastructure creation, and creating highly engineered products for mass transportation through railway, our focus remains clear. We have always leveraged the power of partnerships and strategic technology collaborations to lead new thinking and technology in the areas we are present in. We have taken our technology to the world and are committed to continuously investing in innovation in order to help create greater impact. This core strength, coupled with our values have enabled us to imagine and manufacture products that can win in markets across geographies.
The culture of innovation runs deep in Escorts and is evident in each of our businesses. We will continue to create genuine product differentiation by application-oriented development in construction and helping build safer railway systems through better and more efficient product design. Innovation has a significant role to play in the way we look at costs, and efficiencies.
We are consistently strengthening our distribution and reach and thinking of novel ways of addressing our customers’ requirements. We are building a stronger Escorts by delivering great products and service excellence to our customers, elevating our innovation capabilities, focusing on efficient capital allocation and execution; and reinforcing a culture of ownership and accountability in our teams. This has also helped us in expanding our exports, and the results are promising. We are now devising sharper export strategies, bearing in mind the requirements of different markets in terms of technology demands and consumption patterns. 2017-18, in particular, was a remarkable year for a number of reasons: above-industry performance, margin expansion, multiple new launches, turnaround of our construction equipment business, a renewed focus on cost management and success beyond India’s borders.
Vision for the next five years and beyond
We will emerge strongly as a ‘technology solutions organisation’.
I am delighted to share that Escorts has a clear ‘Vision 2022’ mapped out.
We are looking at a significant increase in our revenue and profit, accelerating our businesses across three segments. We have done very well in our agri vertical, registering growth in both volume and profit; our construction business has shown significant turnaround and is ready for a stronger year; and our railway division is growing robustly year on year. We plans structured for inorganic and organic growth through strategic partnerships, Joint Ventures (JVs) and investments in state-of-the-art technology.
Enhanced customer value propositions and user experience with digitised and autonomous agri-equipment; smart construction equipment; and mechatronics-based safety and braking technology for railways and locomotives underscore our efforts to provide engineering excellence with in-built intelligence. We will do everything that will elevate value and usability for our customers.
Escorts aspires to transform agriculture by empowering farmers with mechanised, precision-based autonomous technology and to partner the nation in building smart and safe infrastructure. We will create platforms wherein the world can participate collaborate with us - combining unique technologies to create futuristic products and solutions that will transform lives and earn global thought leadership for Escorts.
Performance during the year under review
We are on track. Six years ago, we had drawn up a comprehensive transformation roadmap. Our objective is ‘innovative engineering disruption’ for sustained industry leadership, and we are well on our way towards achieving that.
Ourfinancial position is now stronger than ever. At the end of FY 2017-18, our revenue from operations stood at RS.5,016 crores, growing by 20% over the previous year. EBITDA during the period was RS.557 crores, a healthy 72% increase, compared to that of last year, while net profit stood at RS.345 crores, growing at 115% y-o-y. Escorts’ market capitalisation, as on March 31, 2018, was RS.10,040 crores, a 52% rise over the previous year. I am confidentthat our innovative mindset and technological calibre will enable us to continue to perform sustainably.
We launched the revolutionary electric tractor concept during the year. This eco-friendly tractor will change the way we look at India’s dependence on fossil fuel in agriculture. We invested in greater customisation of our material handling equipment, down to the very last container bucket. We continued to evolve breakthrough railway components, with mechatronics as our ally.
Take on the macro landscape
Despite temporary headwinds, I believe the macro undercurrents are playing in our favour, and there has never been a better time for us to grow and build resilience for the future. I remain enthused by the enabling environment that is currently prevailing in India. For the last couple of years, the Government of India has implemented a wide range of reforms to usher in transparency, enhance the ease of doing business in India and attract foreign investment.
The implementation of Goods and Services Tax (GST) is a game-changer as the nation evolves towards being a single and more competitive market.
The Union Budget for FY 2018-19 reiterated the Government of India’s firm focus on agriculture and infrastructure development. The country’s manufacturing sector is also looking up after a few months of underperformance. However, inflationary pressures may prove to be a challenge, going forward.
Broad industry trends, particularly in India
While agriculture accounts for half of domestic employment, it contributes the least to GDP output vis-a-vis manufacturing and services sectors.
Only a marginal fraction of Indian farmers own a tractor, and mechanical failures in tractors paralyse farmers owing to unavailability of nearby service centres and timely genuine parts, affecting their productivity cycles. In addition, tractor purchases and heavy finance costs burden farmers and their families. Inadequate mechanisation and outdated agronomic practices coupled with rapid rate of urbanisation have resulted in many rural youths shifting to cities and towns. Further, there is widespread want for smart construction equipment with advanced safety solutions, both for urban development and rail transport.
We must think disruptively to empower the farming community. India is still at an early stage of farm mechanisation; and we need to help accelerate the process. Consumers are also evolving to a broader concept of value in terms of functionality and features. These developments augur well for us as we look into the future.
Our response to these trends
We witnessed the nation’s journey, through the turmoil, the revolution, the dreams and achievements, to become one of the world’s fastest growing economies. At this critical juncture in history, the opportunities, disruptions and changes that are taking place in the world, will accelerate progress and change the way we live and work. Embracing this new world order, Escorts continues to strengthen its presence across three key sectors and invest in the right resources, tools and strengths -essentials to win in the future.
Shared services will define the future of agriculture and hence we are pioneering Escorts Crop Solutions that will offer farmers a bouquet of state-of-the-art technologies and equipment, available on a ‘pay-per-use’ rent-based farming model that will improve their yield by 25-30%.
We are happy to introduce another innovative agri proposition, known as TRAXI. It is a platform that allows a farmer who owns a tractor to lend his idle machine to a fellow farmer on rent through an app-based service model. This will usher in and foster ‘agri-preneurship’ and will help a larger base of small and marginal farmers to get access to technology.
With seven decades of tractor manufacturing lineage behind us, Escorts takes the opportunity to offer ‘smart implements’ to the farmers.
Under our SHIP (Sprayers, Harvesters, Implements and Planters) initiative, we are introducing several implements that have been developed in partnership with various leaders in this segment. These smart implements not only address the growing problem of emissions, but also ensure that our customers have access to high-end machines that make their daily tasks easier and faster.
Our customers don’t just need great machines; they need great service too. With the help of technology partners, we are not just introducing high-tech machines here; we are also ensuring that our customers experience superior levels of care and attention during the entire lifecycle of our product. Through our unique ‘Care’ concept, we are leveraging the power of digital technology to bring last-mile connectivity with our spare parts to be delivered in 48 hours -ensuring reduced machine down-time and improved longevity.
Our highly skilled in-house R&D team is adopting pathbreaking technologies to help build smart infrastructural components such as engineering unique mechatronics-based smart braking solutions for rail locomotives. Further, we are collaborating with De Lage Landen (DLL), a wholly owned subsidiary of Rabobank Group, a reputed international financial organisation, for equipment finance ease for our customers.
Escorts is building on a robust foundation of innovation and advanced technology to enrich customer experience and set new industry trends. From creating specialised solutions to providing doorstep delivery service convenience, from incorporating call-to-action service buttons on our machines to embracing the platform of Internet of Things (IoT), we are working hard to push the envelope further and stay ahead of the curve.
Performance beyond India
We have steadily expanded our geographic footprint, registering robust growth in overall exports. We are devising sharper export strategies, bearing in mind the requirements of different markets in terms of technology demands and consumption patterns.
We want to build global capabilities and create impact. We are strengthening relationships with partners across the world to deepen our insight into new technologies and markets. Our culture encourages constant learning and cross-pollination of ideas inside the organisation and beyond.
We are identifying opportunities beyond 62 countries we operate in. We are developing capabilities in other countries to cater to operational excellence. Our training will be along the lines of the technical and operational efficiency skills imparted at Escorts Training and Development Centre (ETDC), Bangalore. We are in talks with leading international distributors to be a part of our business stream for reinforced segmentation and positioning.
We are shifting gears, but our solutions-centric approach across our core businesses remains the same.
During the year, we redefined our Purpose Statements in line with our corporate priorities of building the nation. Our objective is to deliver encouraging outcomes across our business to create wide-ranging impact for diverse stakeholders. Through these Statements, we reinforced our commitment to -power the dreams of farmers; become the preferred partner for nation-building; ensure safety and comfort in rail transport.
The full complement of our three businesses is anchored in our responsibility towards developing world-class products. We will continue to delve into miniscule details of our products to strengthen the promise of our brands.
At our core, we are an engineering company with a deep desire to create societal well-being through innovation, and we will continue to remain so.
Environmental challenges and risks
Uncertainties in the form of inadequate monsoon, geopolitical occurrences, industry volatilities and rising fuel prices are some of the potential risks that may impact the business. Besides, obsolescence, credit availability and government policy changes are temporary risks to the business. We are taking proactive initiatives to step up the emissions compliance of our products and minimise our carbon footprint, in our effort to combat climate change.
We have also institutionalised a robust framework for risk governance as part of our sustainability strategy.
Priorities on our radar
We have evolved a future-focused enterprise that leans on advanced research and development to create highly engineered products. Therefore, whether it is helping farmers achieve their true potential, customising products to satiate India’s appetite for smart infrastructural solutions and fabricating key components for mass rail transportation, our focus remains clear. Our future priorities comprise: curtailing legacy costs, adopting digitisation, simplifying our operating architecture, and above all, embracing frugality and sophistication in operations.
We are strengthening our distribution and reach and thinking of novel ways to address our customers’ requirements. We are building a stronger Escorts by delivering great products and service excellence to our customers, elevating our capabilities, focusing on efficient capital allocation and execution; and reinforcing a culture of ownership and accountability in our teams.
I am honoured to helm a group of real go-getters and innovators, who have the capability and the commitment to translate our vision for the future into reality. I am proud of the efforts of our teams and their passion to deliver makes me more confident about the future of Escorts.
Human resource training and development remains a critical focus for the organisation and we will continue to invest in building competence and people capabilities to achieve our future aspirations and enhanced performance. Besides, we will strengthen our governance principles. We have a vibrant and strong Board to formulate the right strategies and help us reach new harbours of growth and opportunity. What has helped us progress in all these decades is our strong value system, our ability to always put the customer at the centre of our strategy and a never-ending desire to collaborate and learn.
Message for our shareholders
Escorts’ journey has been remarkable, and we are at an inflection point, where we cannot afford to be complacent.
Our shareholders play an important role by keeping the faith and endorsing our strategy. For that, I am extremely grateful. I am enthused by the enabling environment that is currently being created in India - with consistent focus and programmes designed to double farmers’ incomes, policy reforms that are future-focused and a strong push for domestic manufacturing.
Disruptions are the new normal in business and we are geared to embrace it by virtue of our innovative mindset, quick adoption of ‘ahead-of-the-curve’ technology, customer-centricity and a strong performance ethic. I am proud of the efforts of our teams and their passion and commitment to deliver, makes me more confident about the future of Escorts. Our journey in all these decades has been extraordinary and we will together continue to serve the nation with relevant and strong engineering. That’s why, we are putting sharper pencils to work. Every single day.
Since inception, we have always touched and transformed lives in more ways than one. True to our legacy, we will continue to be the harbinger of progress and prosperity for all.
Chairman and Managing Director