Slowing growth in the tractors industry and concerns about a merger announcement with some of its group companies have been the major reasons for the negative one-year returns of the Escorts stock.

Good monsoons, increased agricultural output and higher minimum support prices helped the domestic tractor industry record a volume growth of 20-30 per cent in April-March 2010 and 2011. However, industry volumes took a beating in 2011-12 growing only by about 11 per cent. The base effect notwithstanding, high interest rates last year have dampened growth.

Escorts, whose tractors division contributes to 70 per cent of the consolidated revenues, saw its market share came down by about two percentage points to 11 per cent in this period. While the industry is expected to grow in high single digits this year, the not-so-good margins imply that volumes may take a further beating.

The company was also in the eye of a storm regarding the proposal to merge Escort Construction Equipment (subsidiary), Escotrac Finance and Escorts Finance Investments and Leasing (associates) with itself. Firms representing minority shareholders alleged that the way in which the merger was structured quadrupled promoters’ voting control to 41 per cent compared to their direct shareholding of about 12 per cent. The merger has, however, received the nod recently.

(This article was published on June 30, 2012)
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