Escorts expects tractor industry to grow by 8 - 10%
Bharat Madan, Group Financial Controller of Escorts Group speaks to ET NOW on profit margins, new launches and future plans of the company. Excerpts:
ET Now: What was the volume growth like for the year if you have looked at it and based on that what is the guidance that you can give for FY17?
Bharat Madan: Well, last year the decline happened in the industry which continued throughout the year. The last quarter saw the growth coming in to industry grew by about 8 per cent in the Q4 so that is a recovery we are seeing.
Most of the recovery happened in the southern and western markets and the trend continues even now, so April also had seen 14-15 per cent growth.
Hence, we expect first quarter will deliver positive numbers. It may be anywhere between 6 per cent and 10 per cent and the monsoon really seems to be good. Therefore, we see very good recovery happening in the second half of this year. So, overall we are positive for this year.
ET Now: Tell us a little bit more about the new product launches as well that you may have planned for the entire fiscal?
Bharat Madan: We have launched some products last year also, I think we have a new range of Powertrac which was launched at Euro 45, Euro 50 series and there is a classic series in the Farmtrac brand and all the products have been received pretty well in the market.
So the new product launches are continuing now, there will be few more launches in the second and third quarter this year so we expect trajectory will continue.
ET Now: Seeing a growth of 6 per cent; are you referring to the volume sales and are you making a case that the Escort sales will go up by 6 per cent
Bharat Madan: This I am talking about tractors especially but on the construction side also, if you look at the industry, it has started growing after five years of decline. So, last quarter was positive for the industry. The overall industry grew by almost 30 per cent.
Hence, all the road segment is doing well and the other segment has also now started improving so I expect the growth should happen on the construction equipment also. Then railways is another sector which I think will be positive. So I would say overall we see a good growth happening on the revenue line.
ET Now: What could be the growth for the tractor industry for FY17 assuming that we have a good monsoon this year?
Bharat Madan: If it is a good monsoon the H2 will give a very good growth rate so overall as of now we expect the industry will grow by 8 per cent to 10 per cent. As of now the monsoon prediction for northern parts doesn't seem too good with markets like Punjab, Haryana, UP expecting below normal monsoon. So let us see how the monsoon pans out.
If these markets improve then we will definitely see very high growth rate coming in the second half of this year but otherwise for the central India we are very bullish so I think market should really move up October onwards.
ET Now: We always tend to look at Escorts with only one prism which is the tractor business. You have presence in the construction equipment business which you just mentioned and you also do work for railways so what is the update on your third big business which is a railway business?
Bharat Madan: Well, railway order book is now growing. In the March-ended quarter, we had an order book of about Rs 55 crore but in April we got lot of orders, there are lot of orders which are again pending in March we expecting them to get executed but they actually got delivered only in the Q1 this year.
So the order book is healthy so we expect there will be good growth in the railway business also.
ET Now: Number of what your railway order book is at?
Bharat Madan: Well, overall the top line is last year was about Rs 200 odd crore on railways so that is only as of now about 5-6per cent of our top line but the business has a potential to grow very well.
ET Now: What is your understanding of inventory at the dealer level. The tractor industry has come out with decent set of numbers of late, is that largely because of demand uptick or uptick at dealer level?
Bharat Madan: This is the demand uptick. But generally at the inventory level at the dealer end most of the correction have taken place, we also did the correction of inventory in last year so almost close to high triple digit number inventory is corrected. So, I think most of the correction is done in the industry now if the demand picks up definitely the levels will get corrected.
ET Now: What about your guidance? What do you expect to do on the top line or bottom line as the case may be?
Bharat Madan: In volume growth, we will follow the industry standard. This quarter, especially, the north has still not picked up but the MP market has started picking up.
We expect, in Q1, to have a growth of at least 6 to 8 per cent in the tractor business. Overall for the year, we expect the top line to grow by 8-10 per cent. Most of it will come from HP.
As for the bottom line, last year we managed to improve our EBIT margins by over a per cent. The trend will continue this year as well.
Margins will improve as some of our cost initiatives are paying off. Tractor business will see a margin improvement and on the top of that, there will be volume growth with the industry as a whole growing. It will be a bonus for us.