Expect to beat industry revenue growth rate: Escorts

He expects Q2 to be very strong, 18-20 percent growth is expected in Q2, he further said.

The company has got a strong order book from railways.

Below is the verbatim transcript of the interview.

Latha: First let me get the revenue numbers and the volume expectations for the first six months. You must have already spoken to your dealers and you will have a fair idea what kind of volume growth this year?

A: As industry we are expecting it will be double digit growth. So, I think anywhere between 12-15 percent growth number is expected.

Reema: 12-15 percent for Escorts or for the industry?

A: The industry.

Reema:  Escorts will beat the industry growth rates?

A: Yes, that is what we are hoping for, to be able to beat the industry growth.

Anuj: Going forward how much of that number would come from volume growth, how much from realization growth?

A: I think major is going to come from the volume growth. Realization growth there will be some improvement definitely. We have already taken some price increase in last quarter in March so that impact has been visible in realisations in first quarter also. Again I think first quarter we had seen inflation pressure on the commodities which led to some decline in margins for the tractor business and probably in due course we will take a price increase to compensate for that.

Anuj: So your volume growth was 7 percent for the quarter, what kind of guidance can you give us?

A: First quarter was slightly slow because of the GST concerns, there is some transition which is related to the stock lying in the channel. So some bit of destocking happened in first quarter which fairly will get made up in the Q2. So, we are expecting Q2 will be very strong. So, 18-20 percent growth is expected in second quarter which is likely to be pretty strong quarter in the whole year.

Latha: What about the GST disruption, I think in the conference call you said you paid Rs 24 crore to dealers to make up for the GST loss?

A: That is the sort of impact which will happen if you don't get a deemed credit on the inputs. So, we are still expecting Delhi government will come out with some guidelines for this and allow the credit because all other industries have been allowed credit except for the tractors which was earlier exempted from duties. So, that is a bit of a disappointment for the industry.

Latha: So you have mentally written off Rs 24 crore at best that you may have to pay for those which were stocked pre GST?

A: If the announcement does not happen that effect will come in this quarter.

Latha: Will that be made up in other fashion, are you expecting the GST regime to give you any other kind of benefits?

A: I think it is still wait and watch. I think everybody expecting the move from the other players in the industry, but there is some advantage which can accrue because of GST but that probably will be used to make up for these losses in the transition.

Reema: You had plans to achieve a 13-15 percent EBIT margin in the tractor business. When are you likely to achieve it?

A: There is a three year target which company has taken. I think we are working in that direction.

Latha: What may be the guidance for the current year itself on margins, you have done well in the first quarter?            

A: On tractors we had already indicated it will be a double digit margin. So, last year also it was double digit. It will be lower double digit, maybe somewhere around 11.5 sort of range. Construction equipment we are likely to be breakeven or slightly positive this year. Delhi we are going to be stronger with 13-14 percent sort of margin this year.

Reema: You lost market share in your domestic tractor business in Q1?

A: The loss is more because of deferral of billing which happened. So, that will get made up in July. It is very difficult to judge based on pure one single month of June.

Latha: Just a final question on your construction equipment and railway equipment business, railway equipment I think went up 6 percent, are you expecting anything better for the full year since the railways seem to be spending?

A: Railway we got a very strong order book. So, we are sitting on almost Rs 140-150 crore of order book as of June 31 and we got some more orders Rs 50-60 crore of order which is being accrued now. Almost Rs 200 crore of order pipeline is there which will get executed in next six to seven months.