Escorts looks to double revenue in the next 3-4 years

A: I think it has been a wonderful year, the team has worked exceptionally hard -- we have been extremely focussed for the last four years, so results don't come through flukes. We actually have a strategy, there was clarity about brand positioning, about our investments on innovation and platforms. We had the top team work with some important partners like McKinsey -- so analysis in terms of the compression that we have done as a company all of it converge in 2016 -- so material cost came down from 74 to 69, the new products got announced. I think it has been a remarkable year for Escorts to sort of position itself and bring it strength out of all the work that happened in the last 4 years.

Q: You were telling me before this interview started about how it is at a cusp, you are at an inflection point Escorts and there was a long gestation period 4-5 years where you actually putting all your energy to get things right and this is perhaps you are at the tip of the takeoff for Escorts?

A: I have never been as excited as I feel today about Escorts. The amount of innovation, the energy, the clarity, the products that we have launched and will launch not just this year, but in the next 3 years is going to truly bring the Escorts respectability back.

I think Escorts always had in it DNA which was embedded by the founder, HP Nanda that we have to lead technology. We have to see trends and we have to give embracement of values to our customers in a manner that would be reflected in our product positioning and today I feel that. I am extremely proud of our engineers and I personally can't for these products to come out in the market and for customers and our partners to feel the confidence that I feel today. I really feel that Escorts is at an inflection point of takeoff.

Q: We are just few months left to the financial year to close. Again as I said, tractor has seen a great growth over 20 percent after what 10-12 percent decline over the previous two years. How do you see the remaining 3 months closing out for Escorts?

A: I think as compared to last 12 months this is going to be positive 12-15 percent, the monsoons have been good, the fundamentals are extremely, extremely strong. The minimum support prices (MSP) that were launched by the government has also given a positive indication -- so I think the year will positively close on a good number.

I believe that fundamentals are in place and the growth trajectory should continue for the next two years as well.

Q: And you don't see the temporary blip as far as demonetisation is concerned to take a toll in the last 3 months January-March?

A: I feel this is a temporary transition period. Yes, there has been some de-growth in the month of November, but I believe starting from February 2017 and then in March we are expecting Navratras to comeback and from what I am picking up from my team and from the farming community that the sowing has been extremely good as compared last year- -so again the point on the fundamentals is strong. The transition should be behind us by Feb-March and I think the momentum should start again.

Q: Recently you have also merged the backend for tractors, the agricultural machinery and your construction and clearly there is a lot of innovation taking place. Talk to me little bit about the kind of products that we can expect coming from Escorts.

A: When we did the main restructuring of the Escorts 4 years back -- it is important to look at your resources. To get different results you have to do different things and this was a most important decision that we talked of us to converge our knowledge management centre. As the world understand it from the point of research and development. The platform and the experience of Escorts of knowledge on its research on the agricultural side and the construction side were brought and converged and I am seeing some innovative and some exceptional discussion that are happening now, because the talents that have converged, the discussions that are happening -- are happening in a manner that is giving us thoughts and ideas on products and platform, which will create disruption and the product that I said earlier that you will see both in the construction and in the tractor will show the essence of disruption.

In terms of application based decision mechanism that we will give to our consumer, so yes Escorts is now very efficient and it's embracing the knowledge that it has built over the last 7 decades, so the TPM culture that is also now taking that design and that knowledge of disruption into manufacturing. I am proud of the kind of work that our top team are doing.

Q: Give us a sense of the kind of product that we can expect and how important will next year be from a tractors point of view which is really the cash cow for Escorts still?

A: You see today's consumer is empowered -- he has mobile phones, he is informed about technology --I mean an opinion maker or a customer for tractor is also has certain standards of expectations vis-à-vis even a car that he is buying. So, Maruti for instance is setting certain standards of quality - - we feel as much as we have to give more technology and precision in the kind of application that the farmer looking for from his tractors, why not give him comfort, why not give him an experience which is new -- something that he can feel that this platform and machine is giving me a multipurpose answers to many of the things which I haven't expressed.

Escorts has worked with international partners like Agritalia, Porsche Design -- no one thought that a company could go to Porsche Design and say help us design a tractor and 2017 Escorts is going to launch a world series tractor. It is going to be a new platform and that platform and that technology will start from 18 horsepower all the way up to 120 horsepower and as an Indian not just as an Escortian I feel extremely proud of the kind of technology that we will launch will showcase the inherent strengths that we possess as Indians.

Q: And this sort of tractor is not there?

A: You may feel I am biased and I perhaps will say things that when I saw the product it is parked just about 100 metres from here I feel extremely proud.

Q: How many months away are we?

A: It is going to be next year. And I have given this indication to my top-team that there has to be one day in a year that we are going to call it as a launch day. And it has to build up to a level where the engineering fraternity must wait for Escorts to launch what it wants to launch on the launch day be it in terms of a tractor or in terms of construction to showcase the leadership technologically because the future is for those who have the sense of imagination, who have the ability to innovate in a frugal sense and perhaps we can have our next interview on the launch day.

Q: This will then be perhaps the most significant tractor launch from Escorts in a while? Just t underline the importance of this for you.

A: To give you an essence of the kind of evolution that is taking place in Escorts. In the last six decades if we have had 7,000-8,000 part numbers, in the last two years and in the current year, we are developing more than 6,500 part numbers. So, that just gives you a perspective of the kind of platforms and products we are launching vis-à-vis the precision that we want to bring out in the market. So, the launch that we are planning next year is one of many significant launches. But it is going to truly showcase.

Q: It is the start of?

A: Of a platform and a technological leadership perhaps.

Q: You are the turnaround man. You were catapulted to this position almost 14-15 years back and you have triggered this remarkable turnaround in Escorts. And many investors would say that the next target for Escorts should be de-risk your business model and to reduce your dependence on tractors which still contributes 79-80 percent your overall topline. Talk to me. Is that part of your vision now to reduce your dependence and your dependence on tractors and actually have your other businesses command a larger share of the top line.

A: Most definitely, but before I go into other businesses, a little bit more on the agriculture side. The past in Escorts or perhaps in the industry, it has been about the machine that we have pushed to the consumer. The future is more about pushing a solution to the customer. So, Escorts is going to de-risk its portfolio of embracing its customer both from the product innovation point of view and also from the shared services point of view. Shared services is something that we have not seen much in India. That is a trend which I believe will change and create a different expectations in consumer minds as we have seen in the car industry. We will perhaps speak a little bit more in our interview about the crops solution because Escorts has to change its philosophy from just being known as a tractor manufacturing company to a crop solution provider. So, therefore, the focus has to be on how we can bring in productivity and quality to our consumers and giving the kind of knowledge and mechanisation products that the consumer can look at Escorts and say I am extremely profitable and productive.

Q: Talk to me a little bit about the initiative for crop solutions. Clearly you are moving more towards creating stakeholder value. What are the plans in that regard?

A: Crop solution is going to have the knowledge on all the crops that are grown in a manner that knowledge will cascade to the consumers. We are experimenting and creating structures whereby this knowledge can go to even the smallest farmers. There are bouquets of products that must be used to get the kind of productivity and quality of grain. So, unfortunately a lot of our small farmers do not have access to those equipments because of the expenses and the fact that the machine is expensive. So, we are creating models which will enable consumers to have access to this technology.

Q: Going back to my previous point about your vision of reducing your dependence on tractors. Is there a number that you have in mind, a sort of target that you may have set for your group that this is where we should ideally be if we want to be considered seriously as a diversified business house?

A: Railway is a vertical that has a lot of opportunities. We are planning and investing into many product portfolios. I believe that this business can touch a topline of Rs 1,000 crore in the next four years. We are investing into the current sets of products. We are also investing into products that will go into metros. So, I most definitely feel that railway is going to grow exponentially in the next 3-4 years. Rs 1,000 crore is the line of sight that we have for the railway vertical. Construction, by the end of this current fiscal should see a breakeven on the earnings before interest, taxes, depreciation and amortisation (EBITDA) side. As I mentioned, the restructuring that we did at Escorts will again showcase the innovation and newer platforms of products to answer many needs of Make in India programme.

Just recently we launched a city crane. It is one of the newest platforms in the industry because cities are also being invested into. And you have a product and platform that can do the job and can also do it safely. So, a lot of new products again, in the shelf which are going to get launched and that itself will create a momentum of topline growth and the profit growth. So, construction I believe is a business that Escorts will make good money from. We need to be a little patient, perhaps another 12-18 months, but we are getting there.

Q: But is there a number that you have in mind that you would ideally want tractor revenues to generate?

A: I believe that 2020 should see Escorts more than doubling itself, be it in terms of agriculture portfolio, for sure, construction should also double itself. Railway as I mentioned, from the current topline going to Rs 1,000 crore, so that is a delta of growth. So, growth is a big lever for Escorts in the next 3-4 years now that we have the fundamentals in place and the products and technology in place.

Q: So you even expect revenues from your tractors to double by 2020?

A: All the products that I have talked about and with the technology and the innovation that we have invested into will see its place in the domestic market and also, in the global markets. I see Africa as a country and continent that has a lot of opportunities. We have brought in partners. Again, my personal obsession for growth in global markets is not in investing into distribution or investing into infrastructure but more in terms of product technology and have partners in geographies who have the local understanding. And we have, in the last few months, chosen some very powerful partners who bring in the eco-system of connecting with the local consumers. So, Escorts today and in the future will be in the position to offer product platforms and products for those countries in a manner that the technological evolution will see its product mapping from Faridabad all the way into this international markets.Q: The tractor business has recently hit a double digit EBITDA margins. At a consolidated group level it is still about 7.5-8 percent. Can you give us a target that you have set and a forecast for your margins at an overall group level considering the fact that you are saying that Escorts is at an inflection point and you are going to see a take-off from here on?A: Very fundamentally today, at Escorts, our obsession is on cash; cash management, EBITDA management. The processes, the platforms, the technological enablement of levers that we have introduced into the company. The ecosystem that has been built focuses on that cash element. So, the objective of Escorts becoming the most profitable tractor company is one of the most important objectives for this company whether we achieve that in three years, four years or five years. So, we want to showcase the inherent strength not just in investing in technology, but also creating the factor of agility and efficiency because the environment of tomorrow is going to demand from a company like us to be very flexible. And we must be light on our cost of capital. So, the return on investment (ROI) on getting a return on every penny that you see in a balance sheet is what must get maximised. So, in the reviews that we have every month, I also ask my CFO to reflect the economic value added (EVA). So, EVA, weighted average cost of capital, focus on cash and having that as a basic focus will always remain. So, most definitely the group, consolidated in the next 1-2 years should look at our double digit EBITDA and I am driving hard and along with my team to creating that benchmark to a level where we can become the most profitable.Q: Most profitable tractor company in the company?A: Engineering company. I will look at Escorts as an engineering company. As our corporate campaign says, ‘Engineering the fundamentals of growth’.Q: A lot of focus is also gone in managing your costs. Manpower costs is also one element of that. Where you have proposed something rather interesting of expanding the roles of your white collar employees. Can you talk to me a little bit about it? Is this some sort of internal restructuring that you are doing? How should we read this?A: Again, we asked ourselves. Escorts management must spend its time in not just managing the business, but in building its business. So, normally a few things that I ask of my top-team that how much of your time is going in managing the business, because 70 percent and more should be in developing the business. So, all of what I have mentioned to you of Escorts doing what it must do in all factors of all the levers, will not happen if my entire top-team is not in place as much as I am because I individually cannot bring this change. It is a team that is doing the remarkable work and change. So, that very question is taking us to a level of precision in terms of time that we must not spend time in. So, we took some concrete decisions in the last three years. Internal audit, why should Escorts have its own people doing internal audit. We do not want internal policing because corporate governance is an important aspect of trust which Escorts must reflect to the outside world. So, we went to Grant Thornton, brought them in. Financial accounting and accounts receivables, we went to Wipro. IT, we are not an information technology company, so we went to Cognizant. So on indirect materials, we went to Accenture. So, we must spend time on technology, brand and market development. And the delta of growth. So, today, when you are in our boardrooms or you are in management discussions. The discussion is about how can you grow exponentially, transformationally. Now, for that to happen, you need to have destructive innovative thoughts of penetrating into the mind of the consumer which is something that he has not seen. And I am enjoying those kind of discussions in the company. So with some of these decisions and job rotation, we are getting leaner. But blue collar continues to be a large cost in Escorts. I want to be candid that 10.5-11 percent of personal cost in topline is unacceptable. We have to look at a single digit and in the next three years. We have a plan of looking at voluntary retirement scheme (VRS). We will do it in two stages. I do believe there is a possible scope of 800 people that can be relieved on the blue collar. But we will get to a good number on personal costs. So, that is the last leeway that is left in Escorts, but very much under focus.Q: And by when do we see the first stage of this process being completed?A: As I said, this would be in two stages. Both the stages should get completed in the next 3-4 years.Q: So, five years down the line, where do we see Escorts. You have given us a vision for 2020, but for five years?A: 2020-2025, the future is for people who have the ability to imagine the future. The imagination will come in with destructive innovation ability and thought leadership, on the kind of excellence that we are able to align and converge on the businesses that we chose to do. So, again, I am excited about services, products that we have not talked about in today’s interview, but products and services that will become an important ingredient in tomorrow’s way of doing business. So, there are a lot of technology and products and services that we are talking about internally in Escorts which, I believe, can and will become a substansive part of our future growth beyond 2025. And I am reading a book on the future industries of tomorrow. And we are spending a lot of time and not just the catch up and the 2020, but beyond. Because if I am expecting my team to spend their time on building Escorts, that discipline also goes for me that I have to talk about and thing about how we can build Escorts beyond five years, beyond 10 years. So, there are some exceptional discussions that we are having which will become an important aspect of our growth.