On Road Price
Escorts limited one of India’s leading tractor manufacturers, reported 65% yoy growth in domestic tractor sales in March 2018. It sold 11,557 tractors in March 2018 in the domestic market against 7,014 tractors in March 2017. Export sales were up 3.6x. Escorts exported 233 tractors in March 2018 against 65 tractors in March 2017. Total sales, which includes exports and imports, were up 67% yoy at 11,790 units in March 2018. For the full year (FY18), Escorts sold 80,417 tractors against 63,786 in FY17, implying growth of 26% yoy.
Tractor sales have been on an upswing for past several months due to two successive years of satisfactory monsoon, improved crop production, easy financing and growing use of tractors in non-agricultural sectors. The sector also benefits from low penetration of tractors. About 20% of tractors are used for non-agricultural use. The government’s thrust on roads and highways development as seen in Bharatmala project would also be positive for the higher tonnage tractor segment and the players therein.
For Q3FY18, Escorts derived revenue from agri-machinery (79%), construction equipment (CE, 15%) and railway equipment (6%). It is one of the leading tractor manufacturers in India with capacity of 100,000 tractors/year. On the back of cost control measures and product mix, Escorts has seen steady improvement in tractor margins from 10% in Q3FY17 to 15% in Q3FY18. The tractor cycle is expected to remain favorable in India in the next two years on account of improving farm sentiment. Its CE products include cranes, compactors and backhoe loaders.
Armed with Rs330cr order railways book, management has guided for 15-16% railway EBIT margin in Q4FY18 against 13% in 9MFY18. New launches, geographical penetration in tractor segment and higher traction in construction equipment will drive 12% revenue CAGR over FY18-20E.