Escorts Ltd will divest its auto parts businesses to Pune-based Badve Engineering in an all-cash deal, as part of a broader strategy to focus on its core businesses.

Speaking to BTVI , CFO Bharat Madan says the company will now focus on core verticals in agri-machinery and construction and railway equipment.

The company also wants to take its railway equipment business forward, now that it has an order book of over ₹100 crore, he adds. Excerpts:

The rationale behind the divestment of the auto parts business seems to be the losses the unit was making.

But what is the core impact it will have on the overall sales of the group?

The business was not making money for many years. For quite some time, we have been looking for a strategic player, which, we think, will take this business forward, and let us focus more on the core verticals of agri-machinery and construction and railway equipment. In line with that strategy, we have been able to cut the deal with Badve Engineering Ltd.

They have been tapping two- three- and four-wheeler industry for a long time and is a pretty well-known name.

We are confident that they will take the business forward from here. Our logic was that the business has been losing money and we had to cut down the losses. On an average, we were losing ₹6-7 crore per quarter from this business.

We didn’t think it was the core area for us to continue. So the decision was taken in that direction.

What amount will you could garner in selling the OEM (Original Equipment Manufacturer) business to Badve Engineering?

This is not a business-sale deal. It is an asset-transfer agreement.

So the plant, machinery and inventory will get transferred on the record date and the valuation will be decided on the record date.

How are you going to focus on your core business? How will it add to the company’s numbers?

Looking at the three other businesses, the tractor business is pretty doing well with the above-normal monsoon and good growth coming into the agriculture sector. Our margins are also improving and tractor will definitely continue to remain our core business.

Construction equipment is one area where we are losing money, but there again we are seeing very good growth in the infrastructure side. Last quarter, we saw growth of 15-16 per cent on that segment. So we expect to cut down on the losses and break even at the EBITDA level by the end of this fiscal year. Next year, we will move to positive territory.

The railway construction business is also growing, and we have a strong order book there. The margins are also looking good at 15-16 per cent. These are the three vertical we are going to focus going forward. And the numbers should look encouraging both at the top-line and the bottom-line.

Any immediate plans to deploy the funds for capex?

We just signed the deal today. It will take some time to get all the approvals from government authorities. So we are looking at the end of September or October as the target date to close the deal. Only after that will we be in a position to focus on the three core businesses.

After the deal, will there be any business left on the auto component segment side?

What is getting hived off is the OEM and the export business which were almost 70 per cent of the top-line. A small after-market operation is still left with us and is getting merged with the tractor business. That will continue, as it is a profitable business.

How bullish are you on the railways business?

On the railway equipment side, we have got a strong order book of ₹100 crore plus. The margins of the business are very strong. The orders from the Railways are continuing. So we have to take that business in the right direction in the time to come.

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