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Agri equipment maker Escorts says its capex plans to ramp up tractor capacity and other programmes are intact as the company sees positive growth outlook for FY22 amid the impact of second wave on tractor demand.
The company, which will be celebrating its Platinum Jubilee this year, says macroeconomic factors (under-penetration of farm mechanisation, expectation of normal monsoon, continued government focus on boosting rural incomes) are extremely positive and will augur well for the tractor industry.
Escorts admitted that Q1 will be challenging for the industry after ending FY21 with record volumes. The second wave of the pandemic has proved to be dampener so far and this time has also affected the rural heartland. Sales and manufacturing have been disrupted due to the lockdown. About 70 per cent of Escorts’ dealers are closed. Overall, the second wave is seen clouding the demand environment over the short term.
Positive sentiments
However, as sentiments are still positive in rural areas due to good monsoon forecast and other favourable factors, the company believes that like last year the industry may see a pent-up demand as soon as the current conditions improve.
“So, the opportunity for positive growth still exists for fiscal. We expect the tractor industry to record growth in mid-single digit in this fiscal. We are continuing with our capex plans. The pace of activity may be slow but expansion plans are very much on track. We may spend ₹300-325 crore capex during this fiscal,” Bharat Madan, Group Chief Financial Officer & Corporate Head, Escorts, told BusinessLine .
The company proposes to expand capacity from 120,000 units per annum to 150,000 units. It clocked total domestic volumes of more than 1 lakh units for the first time in FY21, while exports stood at about 5,000 units.
The company expects volumes to increase due to new product introduction and penetration into more markets. Also, the JV with Japan’s Kubota is expected to open up new markets for the company.
The JV commenced production during last fiscal and produced close to 5400 units. The capacity of this JV unit will also be ramped up to 30,000 units this year. Thus, overall, the company is likely to have a capacity of about 180,000 units.
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