Auto biz exited, focus now on construction, railways: Escorts

Escorts will now focus on core agriculture (tractors), construction and railways businesses says Managing Director Nikhil Nanda speaking to CNBC-TV18 after the company announced divestment of its automobile parts business.

Nanda sees the construction business turning EBITDA positive soon while new products like shock absorbers for high-speed trains and metro orders could take annual revenue of the railways business to Rs 1,000 crore within the next 4-5 years. The railways business currently has annual revenue of roughly Rs 200 crore.

A good monsoon has lifted sales in the tractors business over the last 5-6 months and full year volume growth could be about 10-12 percent, he says, adding, the company has regained market share reclaiming its third spot in the space.

While refraining from giving out consolidated earnings guidance, he says, “Excorts is now not just looking for incremental growth but transformational growth.”Below is the verbatim transcript of Nikhil Nanda’s interview to Sonia Shenoy and Anuj Singhal on CNBC-TV18.Sonia: The biggest positive is the divesting of the auto business. Can you share some numbers with us, how much did you do it for and how will it aid your profitability?A: On the construction there are lot of products that are under development. The future is going to be about having the ability to sense the application need in the construction segment. So, Escorts has gone back to the drawing board and is developing platforms keeping in mind the requirements which are coming vis-à-vis the Make in India program. For example. We are at a very advanced stage of developing a city crane, a crane that has all the application need, has all the innovative features to create the application that is being needed for the kind of development we see in our cities. So, there are many applications with which newer products are going to be launched and with those launches we are going to see lot of energy and lot of drive in terms of numbers, contributions and that will change the future of what we believe is going to become a very powerful story for Escorts in the construction business in the years in the future.Sonia: Since the construction business view is positive by when do you see the construction business turning into the black?A: A lot of work is under play right now. I believe that the earnings before interest, taxes, depreciation and amortisation (EBITDA) positive we should achieve very soon. I don\\'t want to give you a specific timeline but I can give you a confidence that also with the recent restructuring that we have done with Escorts whereby we have brought in the factor of agility and leanness so the entire backbone in terms of manufacturing and the support services now have been converged. So, in terms of the modules of excellence which are driving the growth in tractor business or in terms of the TPM culture that we are bringing into our company the same excellence now is also coming into the construction segment. So, I believe we have a great team which is working currently and with initiatives that are under play we will see the result that you are asking for, it is a matter of time.Sonia: The railway business has seen a decent growth this time around. So, what are the steps that you are taking to grow that business?A: My board, my chairman, myself we are very optimistic on the railway business. I believe the next four to five years this segment should be upwards of Rs 1,000 crore. In the past few quarters we have made entry into newer product lines. Recently we also got approved for the bogie mounted braking systems (BMBS), we are getting into couplers, shock absorbers for high speed trains, we are also doing a lot of developmental work to see if we can make a very strong entry into the metro segment. So, in categories of high speed trains for the wagons and even for metro and also for the international requirements in terms of the design work that we perhaps can do and products that we can supply for the international markets are also product line that we will introduce. So, I do believe there will be a very transformational growth that you will see from our railway segment in the next 2-3 years.Anuj: Just to get it right you are saying that Rs 1,000 crore topline for railways business?A: I say that in the next four to five years I see railways business to touch a Rs 1,000 crore topline. I see no reason why we shouldn\\'t go for that topline given the kind of opportunity we see in India and in international market and yes vis-à-vis with the requirement and the developmental orders and work that we are doing in bringing a new product I do believe that this can be achieved.Sonia: What kind of growth do you foresee in your bread and butter tractor segment itself. The growth has been very good so far and what stage of the tractor up cycle are we in now?A: The last five to six months have been extremely positive. We all are thanking the heavenly gods for the uniform of rainfall that we have seen in this country which was much needed. The sentiments from the rural markets are extremely positive. Also the last three years were very difficult. So, a lot of postponement could be something that we also see could be an aspect of the growth that we are seeing.I do believe that in the current fiscal for the full year it could be upwards of about 11-12 percent. So, I am very bullish on the current fiscal growth numbers and I do believe it could see us through for the next one plus two years given the fact after 2.5 years we will be seeing an election. So, the mood again could be optimistic.Anuj: 11-12 percent you are saying for FY17 itself as well?A: 10-12 percent, for the current year.Anuj: So, geography wise where are you seeing the growth and where do you see incremental pickup?A: As far as we are concerned we are going to be pan India player. Escorts traditionally was strong in the northern and the central market. In the last two years my team has done an extraordinary job in creating product applications for the need that are required in the southern and the western region. There are lot of products that Escorts has launched between both the brands of Farmtrac and Powertrac.So, from a paddy requirement to a haulage requirement, we have a special tractor for haulage, which we call an ALT to all the application need that we see today in the country for agricultural purpose we have the product. I believe the mood and the preparation along with the right product with the right contribution which is a result of the right costing that we have achieved Escorts is ready for takeoff.So, the growth will be evenly in south, west. Moving forward I do believe by the end of this current fiscal what I have indicated to my team is that our weak markets have to turn to opportunity markets and we must have double digits in terms of market share. And I am happy to share that for the month of July Escorts has overtaken Sonalika, so we are back to third spot but this again has to be consistent and we will do so vis-à-vis the processes along with the application, knowledge that we have today as a company. So, I do believe that we will be evenly distributed between the four regions.Sonia: You gave me a growth target for the next four to five years for the railway segment but what about the consolidated entity, what is the expectation? A: I don’t give any forward numbers but all I will say to you, viewers and to our shareholders and prospect investors is that Escorts is not just looking for incremental growth, we are looking for transformational growth. We are going to achieve leadership position in our core businesses that we have chosen and we also want to see robust growth which is also desire of our board of directors in the international markets. So, we also want to graphically spread out presence and have an active participation for the growth that we see even in the African continent and then moving forward to the Northern American markets as well. So, I think coupled with what we see, I believe there is lots of opportunity in the plate and I think Escorts is ready for that opportunity bite and with that opportunity bite we will see good profits, good growth and more importantly and most importantly good governance with great executive and empowerment to the youth of engineers that we are recruiting into this platform. I am having fun and I want the people to have fun who are part of this platform called Escorts.