Q2 will be stronger than Q3 considering early start of festival season: Escorts

Below is the verbatim transcript of the interview:

Reema: Has the GST impact completely played out in June or do you expect some effects to linger on in the month of July and what should be the monthly run rate from here on?

A: This was supposed to be the transition effect which everybody was expecting because of the issues which we still have from the tractor industry, so everybody was expecting that the dealer inventory will happen in this month though the levels of inventory are pretty low with the dealers so this will get made up in July and the billing will continue now in GST. So on a full first half basis, I do not think there will be much impact, so the demand on the ground, as you said is pretty good. On the retail side we see 12 percent growth happening in June which is almost 8,000 plus tractors which sold out. So I am sure overall the sentiments are positive and the numbers should look good going forward.

Anuj: For the month of June gone by, you have seen a month-on-month decline. Is this decline in line with the industry decline, more than industry decline or have you done better than industry?

A: I think this time it will be very difficult to judge because every player has got its own call. We have taken a conscious call to collect the stock from the dealers and minimise the impact basically on the valuation side. So it will be very difficult to judge the number of industry on June month basis. I think we must look at June and July combined month because a lot of billing will happen in July, post GST. So maybe next month we will get a better picture but overall it's in the retail i.e. the consumption story doesn't change. So we have seen growth happening on that side by about 12 percent, so overall quarter is still 10-12 percent growth for the industry and that should continue.

Surabhi: What is the monthly run rate in terms of per unit, number of units that we can expect? Do you hope to get back to 7,000 plus levels, by when can that happen?

A: The next quarter is going to be season quarter. The festive season is starting in September, so you will see a bumper month happening in September. So the first half of the company will remain somewhere around 6,500-7,000 range.

Reema: You see H1 numbers will be not affected. What you have lost in June will be made up in the coming quarters, so for the full year what is your expectation of tractor growth in terms of sales and how would it compare with the industry?

A: We had given an indication, it will be double digit growth expected this year. H1 definitely is looking stronger as of now since all the festive seasons happens to be in this particular period, so H1 will show a good growth rate and maybe H2 will be slightly lower but overall for the full year basis with good monsoon prediction, things are going to look very strong.

Anuj: Last year H2 started with a bang. In October you had the highest sales, almost 9,000, with back-to-back good monsoon but base effect having caught up, what kind of numbers do you think you will be able to report in second half?

A: This time the season is getting pre pone to September. So the festivities will start from September, so all the auspicious days will happen in this period, so Q2 will be stronger this time compared to Q3.

Surabhi: Is there any possibility of any sort of price changes, any price tinkering whatsoever and if yes, what bearing could that have on market share?

A: Some prices definitely will happen because tax on tractor now is about 12 percent compared to whatever earlier -- VAT was only 5 percent and tax was 12-13 percent. So there is a 1 percent plus or minus risk can happen. So depending on these player, how they played out in the industry and for us, it will be about 0.5-1 percent savings will be there which will get neutralised with the sort of transition impact which we will have to bear, stocks lying with the dealers and depots. There is no clarity from the government as of now on that issue. So overall we expect, on the full year basis, there will not be any significant impact from profitability, no downside and no upside I would say. It will remain more or less same post GST scenario.

Reema: Did you have to resort to discounts in the month of June. If yes, can you quantify them and when you say profitability will be intact are you on track to achieve your vision of 13-15 percent of EBIT margins for the tractor business this year?

A: There have not been any extraordinary discounting in June because of GST sale but yes, we did promoter the retail sales so there has been some incentive scheme which was floated for the consumers especially for B2C segment to push the delivery numbers to reduce the stocks but it is one-off, it is only for this particular month, it's a transition period and it's not going to continue. So the idea was to cut down on the inventory levels for the channel which has happened. I think it's the purpose which we wanted to achieve.