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Last Updated : Jul 29, 2016 02:06 PM IST | Source: CNBC-TV18

Expect record tractor sales in FY18 if monsoon good: Escorts

The tractor sales of Escorts peaked in FY14, when it sold around 69,000 tractors. Madan feels this year the company may report similar numbers. It has sold close to 16,300 tractors in the first quarter.


A cost control initiative undertaken during the quarter and higher volume sales helped imporve operating margin, says Bharat Madan, Group Financial Controller,
Escorts. 

Madan expects a volume growth of 10-15 percent this financial year.

The tractor sales of Escorts peaked in FY14, when it sold around 69,000 tractors in the domestic market. Madan feels this year the company may report similar numbers. It has sold close to 16,300 tractors in the first quarter.

The tractor volumes may touch an all time high next fiscal, if monsoons continue to be good, said Madan.

In the railway business, the company has a Rs 100 crore order book. This is double the normal levels, says Madan. Operating margins are expected to improve from this business by 200-300 basis points in FY17 over 12 percent from last year, he adds.

Below is the transcript of Bharat Madan’s interview to Latha Venkatesh and Anuj Singhal on CNBC-TV18.

Anuj: You keep coming out with strong performances quarter after quarter. The margin performance has been quite strong for this quarter as well. Is this sustainable now?

A: One of the reasons for the strong margin performance is the cost initiative that the company took and that initiative is going to pay off in the future as well. So, we expect the margins will continue, but obviously, one of the factors in this quarter was also the volume growth. So, the volume growth, if it continues then obviously the margin performance will also be continuing.

Latha: What did you do in terms of volume numbers and this is coming after several previous quarters when tractor sales simply refuse to pick up? So, this quarter’s volume if you can give us the numbers and tell us what were your peak volumes and when do you expect to reach them?

A: If you look at our peak, it was in the year 2013-2014 when we did about 69,000 tractors, so that is about 70 percent capacity utilisation, so this quarter we are very close to that. It is still slight lower than what the peak was at that time. So, this year, we are expecting the industry will continue to do well. So, we expect may be 12-15 percent growth is possible on the whole year basis and depending on whether monsoon does well, probably H2 can give a positive surprise to the markets. So, we are just keeping our fingers crossed.

Latha: What numbers did you do in terms of tractor sales this quarter?

A: Tractors in Q1, we did about 11 percent growth in the last year on the domestic side, so we did about 16,362 tractors this year against industry growth of 14.6 percent.

Anuj: So, how does that translate into incremental market share and what is your target of incremental market share going from here?

A: This quarter, total market share was 9.9 percent and this is slightly lower by about 30 basis points compared to the last year because the growth disparity in the various regions has been pretty huge. So, the southern and western markets have shown very high growth numbers where we are not very strong players. But overall, if you look at our retail numbers, retails have grown almost 19 percent which is more or less in line with the industry.

Latha: If you have done 16,300 then possibly a 66,000-67,000 looks doable this year. Is that a kind of number we should be prepared for?

A: No, this is a cyclical industry, so there is more seasonality also which is built into these quarters. So, Q1 and Q3 normally are the peak quarters, but Q2 and Q4 will typically be slow quarters. So, I do not think it will be right to analyse the same number. But like you said, since we are looking at 12-15 percent growth, maybe we can still expect somewhere around 58,000-60,000 numbers on a full year basis.

Latha: And that would still be a good 12-14 percent higher than last year as a whole?

A: That is right.

Latha: You were speaking to my colleague about the cost initiatives and hence the margin improvement. So, what is a sustainable number? Should we go on with 8-9 percent as the operating profit margins (OPM) for the full year?

A: Yes, that is the sort of number, which we are looking at in this year.

Anuj: The other two businesses for you are relatively small. The railway business and the ancillary business, but the railway business earnings before interest and taxes (EBIT) has improved from last year. What is the outlook on both these businesses?

A: Railways we have got a very strong order book, it is trading on an order book of almost Rs 100 crore plus this time, which is almost double of what the normal level used to be. We expect the margins will also get improved from last year numbers. Last year had 11-12 percent EBIT margin on railway and this year, we expect it will be at least 2-3 percent higher than the last year numbers. So, overall we have a very good order inflows across all segments. We expect the year to be really good for the company.

Anuj: Let us get back to the volume question. If we have a good monsoon and if we have a follow up impact of that, do you see you returning to the all-time high volume in the first half of FY18 or thereabout in terms of the monthly run rate?

A: I will not rule out that possibility. Given the sentiments remain positive and the monsoon is good and next year also, the monsoon does a little bit better then obviously we expect FY18 will be a record, probably it will be reaching the peak or maybe even crossing it.

Latha: We were given to understand from the last couple of years, that something big is coming from the railways. Have you seen more tender activity, more orders? Should we see that improving from this Rs 200 crore business that it is for you now?

A: Railway has opened the tenders, so for the full year the requirement of the entire wagon budget that they had, about Rs 13,000 plus wagon orders has already been placed. So, the tenders have been opened for that. So, that is why we have seen the order book activity has been good. Now, obviously the railways have been talking about surpassing those targets and if that happens on the coaches and locomotives also, you will see more order inflows happening. So I will remain bullish on the railway side definitely.

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First Published on Jul 29, 2016 10:34 am
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