Escorts Ltd has cut production and raised prices of tractors by Rs 7,000 in January to improve its profitability after a tough first quarter (ending December 31).

This is because collections from retail sales in the quarter fell at least 5-6 per cent behind its expectations, as demand in the industry dropped to single-digits from double-digits last year. The tractor and farm equipment major follows an October-September fiscal.

Mr Nikhil Nanda, Joint Managing Director, told Business Line that the move was part of a multi-pronged strategy to preserve cash and reduce inventory levels. At present, the company can make 4,000-7,500 tractors a month across its Faridabad-based facilities.

“We're maintaining pre-defined inventory levels in the pipeline. There are many reasons for the fall in demand, the farmers' disposable incomes have reduced as Government off take is lower in some cases, while minimum support prices are also under pressure,” he said.

Escorts, however, is optimistic that its performance during the fiscal year will be an improvement over the last, with strong growth coming in the third and fourth quarters. “There is a compression exercise on in raw material costs, which will help save cash. Also, ours is a seasonal business, so most of the sales happen between end-February through to July,” he said.

Quarterly results

The company posted a 57 per cent decline in net profits for the first quarter of 2011-12, which it attributed to increased input costs, expensive loans and higher interest rates impacting demand for tractors.

Net sales saw a modest 0.6 per cent rise, with tractor sales rising marginally to 16,606 units from 16,333 units a year earlier.

“The results reflect the constraints of the current economic environment and the impact of inflation and finance costs. A number of managerial initiatives are underway to meet this challenge,” Chairman and Managing Director, Mr Rajan Nanda, said.

Raw material costs, such as steel and aluminium, were up 11 per cent in the quarter at Rs 582 crore.

While revenues from agri-machinery products and railway equipment space fell 2 per cent and 45 per cent, respectively, income from the auto component segment was up 25 per cent.

“Escorts is embarking on an expansion of its product portfolio, re-gearing product and pricing strategies with higher dependency on mechanisation, and undertaking geographic and capacity expansion,” he said.

Escorts shares at the BSE were down 3.49 per cent at Rs 78.85 on Thursday.

>roudra.b@thehindu.co.in

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