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Better Farm Output to Boost Up Escorts Tractor Sales

Better Farm Output to Boost Up Escorts Tractor Sales
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Escorts is the 4th largest tractor brand in India, witnessing higher growth avenues for the past few years. With higher market share and fatter margins, the company is expecting lot more to come in the coming time such as better farm output should drive more demand for tractors.

Figures say it all – Escorts’ market share increased from 9.7% in Q1 to 10.9% in June 2018 along with higher volumes to 40%, as compared to 26% overall industrial growth. The company raised tractor volumes for FY19 and the valuations areencouraging to move further upside.

Tractor and construction segments contribute around 94% of the total revenues, out of which tractor business accounts for around 78% of the total sales. In the last 2 years, Escorts Tractor Company has delivered volume growth of more than 20%. Now, it expects the industry volumes to grow 12-15% after June quarter results, more than 9-11% growth earlier. The major reasons of the company to raise the guidance are boosted cash flow in the hands of farmers, increase in government subsidies and support prices of crops. Market share gains for Escorts should continue with the new launches in South and low HP range in its stronger markets (Central and North).

The street is pricing in the volume growth of 15% and 5% for the current and next fiscals. The figures of tractor division utilisation touched to 81 % during the last fiscal and are expected to reach 94% in FY19. As a result of this, the company is increasing its capacity by 15% with an investment of 100 crore.

Escorts’ tractor segment margins improved 340 basis points to 14.2 per cent. The company expects to improve EBIT margins by 100 basis points further in the current fiscal year. The June quarter construction equipment revenue grew 32%, and volumes rose 52%. Escorts is expecting the volumes to boost 16-18% YoY in the current fiscal, with improvement.

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