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S. Muralidhar

SHAREHOLDERS of Escorts can continue to hold on to the stock. The company's fortunes this year will depend heavily on the performance of its agri-machinery (tractors and farm equipment) business, which will, in turn, to a large extent, be tied to the fate of the monsoons.

Though there have been a few discouraging signs on the spread and precipitation of the initial bout of the monsoon, it still may be too early to come to a conclusion. Investors may, therefore, continue to stay invested and wait for a clearer picture to emerge.

Though Escorts' posted a poor financial performance in fiscal 2003-04, it could potentially come up with a better set of numbers this year, as it would be one of the bigger beneficiaries from the excise duty exemption that has been extended to tractors.

The Budget announcement exempting tractors and components manufactured in-house by farming equipment manufacturers from excise duty will be of particular interest to Escorts as a large portion of the components that go into the making of tractor are made in-house by the company.

Escorts will be able to glean a competitive advantage over a few of its competitors due to the lower prices that the company can offer on its products.

That said, Escorts (as would be the case for all the players in the tractor industry) will continue to be affected by an increase in input costs, which would largely be due to the escalating cost of steel.

Though a sizeable proportion of the increase in input costs till December last year have been passed on to consumers, the rise in steel prices, post-January, 2004 have largely been absorbed by Escorts.

The company is also hoping to double the number of tractors exported to 5,000 units during this year compared to 2,500 in 2003-04. The increase in exports is expected to come from both the American and European markets and would largely be routed through Escorts' overseas joint ventures — Long Agribusiness LLC and Pol Mot Escorts Spoika Zoo. An increase in export of transmissions from Escorts' other joint venture — Carraro India — is also expected.

In the domestic market, Escorts is targeting a retail-level sales volume of about 32,500 tractors this fiscal compared to about 26,500 tractors that were sold last year.

During the drought-hit, crisis years between 2000 and 2002, Escorts' bottomline had a buffer in the form of a higher-than-average `other income' that had accrued from the company disinvesting its stake in a number of joint ventures over a three-year period. The divestment was part of Escorts' strategy to focus on a core set of three businesses, including agri-machinery, telecom and healthcare.

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