Growth in tractor industry likely to be flat or marginal: Bharat Madan of Escorts Kubota

Madan noted that the shifting of the festive season to October and November has changed demand trends, and projected that the industry will witness growth or contraction of nearly two percent or remain flat.

Growth in the tractor industry would be "flat or marginal" in the third quarter of the current fiscal, according to Bharat Madan, whole-time Director and Chief Financial Officer, Escorts Kubota.
Madan, in an interaction with CNBC-TV18, discussed his outlook for tractor volumes in the second half of the year. He noted that the shifting of the festive season to October and November has changed demand trends, and projected that the industry will witness growth or contraction of nearly two percent or remain flat.

Also Read: Escorts Kubota Consolidated September 2023 Net Sales at Rs 2,059.30 crore, up 8.91% Y-o-Y

"This year the festive season has shifted to October and November, so even though October has been soft because of this shifting of the season to two months, November looks like it will be better than last year. So, overall we expect the industry this year to be more or less flat or maybe grow by plus or minus two percent, depending on how the second last quarter goes," Madan said.

Madan further added that he expects to see marginal growth of nearly two to three percent in the industry in the third and fourth quarters as well.

"In the third quarter, we are looking at marginal growth maybe two to three percent again. And in Q4. we will probably again see similar growth numbers. The first six months have been lower but I think it'll get made up slightly in the balance of the second half this year," Madan said.

Also Read: Knorr-Bremse Group likely to buy Escorts Kubota’s railway business

Talking about the possibility of increasing margins, the CFO added that the second quarter is the softest quarter in terms of sales, however, solid production numbers ensure healthy margins. Madan also noted that he expects the margins to improve further to nearly 13 to 14 percent on a yearly basis.

"We expect the margin will improve, the second quarter is the softest quarter with the sales volume being quite low and the production numbers are good, so that's why you see a slightly better margin. Overall, on a full-year basis, we expect the margin will be higher than Q2 definitely, in the range of 13 to 14 percent in this business," Madan said.

Speaking about the demand trends in the construction segment, Madan said that the segment is displaying remarkable growth and will likely register 40 to 50 percent growth backed by the government's infrastructure spend.

Also Read: Escorts Kubota shares rise 2% on decision to hike tractor prices from Sept 16

"Construction equipment is showing good growth, looking at the government spending on the infrastructure space this year, the kind of capex government has earmarked is huge so we are seeing almost 40-50 percent sort of growth coming in the business now. The second half of the year normally is a good period for construction equipment. We think in H2 also demand will continue the same way, so the same momentum will continue," Madan said.

Madan added that there's also some chance that changes in the emission norms might prompt 'pre-buying' in the last quarter of this year.

"There's also the likelihood of some emission norm changes happening from April 1 in this segment. If that happens, there'll be some pre-buying also, which you can see happening in the last quarter of this year," Madan said.

Talking about Escorts Kubota's railway business, Madan spoke about how a change in the pace of execution might not reflect the kind of growth the business has witnessed.

"Looking at the first six months, I think we have already done more than Rs 500 crore of top line in this business. We expect similar numbers for the second half. The order book number might not show that sort of growth because the execution pace has now increased. We have seen more than 40-45 percent growth in this business, so definitely the pace of order execution has also increased," Madan said.

Madan further added that the company will be able to execute the current order book over the next six to eight months.