Tractor business to get a push from rains: Escorts

Escorts, which recorded a 10.1 percent sales growth in May, is seeing a double-digit growth in tractors. Strong monsoon will aid the tractor growth further, says Ravi Menon, CEO, Agri Machinery, Escorts.Speaking to CNBC-TV18, Menon says that while the growth in the southern market continues to be phenomenal, growth up north has been tepid. Only 2-4 percent growth happened in the northern market. However, Escorts' strength lies in northern markets like Punjab and Haryana. Menon expects strong double-digit growth for the company over the next six months.Below is the verbatim transcript of Ravi Menon's interview with Latha Venkatesh and Sonia Shenoy on CNBC-TV18.Sonia: In the month of May, your total sales growth came in at about 10.1 percent and the domestic growth was also in double digits close to about 11 percent. How has the demand situation been so far and have you seen any improvement at all in the last month or so?A: If you look at the demand, it has been a mixed bag because if you look at the southern markets, they have been growing at phenomenal rates. Andhra Pradesh (AP) for example has been growing at somewhere around 80-85 percent but at the same time, if you look at the north markets, the month of April saw a growth of maybe about 2 percent but in May the growth fell to about 2 percent also. As you said rightly, the monsoon will be the key factor in looking at the south-north divide in these two areas.Latha: This is a little confusing what you are saying if AP demand is good -- they also had a huge problem of drought in the south. Is there a big correlation between monsoon and tractor demand?A: Yes and no because if you look at markets like Punjab and Haryana, these are highly irrigated states. So weak monsoon or a slightly weak monsoon does not affect these kind of states but if you look at some of the other parts of the country where the irrigation facilities are not so good, there is a significant impact of a weak monsoon and therefore it has to be seen in that perspective.Sonia: When you say that the southern market has grown significantly, how would you be looking to expand in that market because if I am correct, your market share in the southern market is less than 10 percent? What are you guys doing at Escorts to increase your market share in the south?A: We are making some concentrated efforts in the states of Andhra Pradesh, Maharashtra, Karnataka and Tamil Nadu but our stint is in the northern markets primarily Punjab, Haryana, Uttar Pradesh (UP), Rajasthan and Madhya Pradesh (MP). So we need to do some excellent work in these areas, we are growing a little bit of share specifically in states like AP but as I said earlier, the strength of the company lies in the north.So we are expecting a good monsoon and that should help us in picking up share in the north and also improving what we already have in the south.Latha: Your numbers are extremely volatile. It looks like you do extremely well in September-October. You reported some 5,500-5,800 in terms of tractor sales, you are repeating it again in March at 5,400. However, contrary to what is it looks like April was lower but May was good. Is there something like a seasonality in your demand, how does normally June-July pan out?A: Typically tractor is always a cyclical industry. So you would see a peak in the first quarter which is typically April, May, June that would be a peak with June being the month, which is the seasoned month and then you have the second and bigger peak coming in October for all manufacturers where typically industry would be around 16 percent of the entire year.Latha: So how was this June, last three weeks?A: June these last three weeks have been good and overall we have seen an upsurge in demand specially of course there has been continuing growth in south and the northern markets if you have followed the trends have been becoming less negative over the last four-five months. So, this is also a very positive sign and therefore, with an overall growth rate of 15 percent in the last two months, I think we should see some good days in the future.Sonia: What could be the average monthly runrate of tractor sales over the next two-three months?A: It is very difficult to put a number to it but in the coming six months with the north being less negative and the south growing at the rate that we are growing, I wouldn’t be surprised if we see a strong double digit growth over the next six months.Latha: Will margins be as good or better?A: It depends on what kind of portfolio each company has because if you look at certain markets like Maharashtra, Gujarat, the smaller tractors that is 0-30 HP is growing at a steady pace and certain other markets like the south, the higher HP tractors are picking up pace.In markets like UP, which are in the 30-40 and 40-50 HP categories, show trends of growth in those categories. So each company will have to look at their portfolio and then based on whichever portfolio they are strong in, they will have to take the growth there.