Construction, railway biz will improve in FY13: Escorts

Tractors manufacturer Escorts reported 49 percent rise in quarter-on-quarter profit to Rs 28.13 crore in the first quarter of financial year 2012-13. Its revenues grew by 25 percent to Rs 1,028.2 crore from Rs 823.40 crore during the same period.

However, their construction equipment business slowed down considerably with revenue declining 3.7 percent QoQ to Rs 129 crore. Speaking to CNBC-TV18 about the financial performance of the company, CMD Rajan Nanda said, "To combat slow growth and recessionary markets where finance is an issue, customers are hesitant to make investments." Similarly, revenue in the railway equipment segment also fell by 29 percent QoQ to Rs 27.6 crore and EBIT loss stood at Rs 4.4 crore as against profit of Rs 7.70 crore in the first quarter of FY13. "Railway is down because we lost lot of business," he added. However, Nanda is hopeful that both these segments (construction and  railway equipment) will see improvement in FY13. Meanwhile, Escorts targets 10% volume growth (yoy) in its tractor segment to 66,000 tractors. Below is the edited transcript of his interview to CNBC-TV18 Q: What is it that you hope to see in terms of volume growth for the tractor segment and how much will that drive sales for you this year? A: We are trying to be as realistic as possible and assuming moderate or no growth. We have got to manage the consolidation economics of our company in getting more frugal. Also in getting our material sourcing down to a level where they had a little more value then we did last year. When we do our projections our turnover is nearly identical to the previous year. Our goal is to try and increase our EBITDA from 3 percent to 5 percent and to increase our profit before tax (PBT) to 3 percent. We are on track and if you see our first quarter results that we have closed we have improved our EBITDA quite substantially. Q: What’s the update on construction and the railway equipment division? Are those struggling relative to the tractor segment? A: Yes the construction equipment has gone down quite a bit, but we are picking it up. To combat slow growth and recessionary markets where finance is an issue, customers are hesitant to make investments. We have brought in new machines, new solutions in that area and we are now building up our construction business. Our outlook is identical business levels of revenue to the year last year, but we will again definitely improve our EBITDA. Railway similarly is down because we had lost a lot of business. We are recouping it, but both businesses will have positive results in this fiscal. Q: What will the impact be on blended margins because those were a bit lower than expectations? Do you foresee more pressure on this 5 percent region? A: We should be okay because looking at the proportions of contribution by each of our product lines to the top line, agriculture is way ahead. That is the locomotive that is pulling other wagons in this recessionary time. So, despite the overall situation we are expecting a full company balance sheet to grow on EBITDA and PBT. Q: What kind of volume growth you are looking at from tractors by the time your year comes to a close in September? A: Last year we did about 60,000 round about. This year we could expect about 66,000-70,000. We are not projecting any fancy growth. However, we are entering new segments in which we have not participated before through new products. We are getting into luxury products, heavy tractors and non-farming products. There is a lot that we have done and the new products will add market and volume. We can't predict what that addition would be but we are optimistic about them.