India Economy

‘There’s greater demand for higher-end tractors’

Parvatha Vardhini C. | Updated on November 16, 2013 Published on November 16, 2013

Nikhil Nanda

Launches in the premium range of tractors, such as Farm Trac and Power Trac, have been well received by the market. This has improved margins in a big way.

The increasing demand for higher horse power (HP) tractors in India is a sign that the market is maturing, feels Nikhil Nanda, Managing Director, Escorts Ltd. He also discusses with Business Line the company’s plans for the ailing auto parts business.

Excerpts from the interview:

The tractors industry is looking up in the last few months even as the slowdown in automobile sales continues. How has it helped Escorts?

Our fiscal is from September to October. From our fiscal point of view, if I have to reflect on the last 12 months, the initial three quarters were extremely difficult. And, for that matter, the last two years were extremely difficult.

It is only in the last quarter that the sentiments were on the rise. The crop cycles are good; productivity is good; the minimum selling price (MSP) for crops is good. So we are seeing a reflection of this positivism in some of the markets in India.

In some states, especially in the South, the demand has gone up significantly.

Our market share in the last 12 months has been flat, may be 300-400 basis points higher. But again, our focus, during that period, was more on profits than on market share. That has been substantiated by our EBITDA margins which have moved from an annualised 4-5 per cent to 10-11 per cent.

How did you achieve this margin expansion?

We have been saying that by 2015, we want to take a leadership position in tractors above 50 HP (horse power). Our Farm Trac applications have especially been driven towards such premium range. The launches that we have made both in Farm Trac and Power Trac have received very encouraging response from the market.

So these new tractors have had a large impact on margin improvement. We have reduced discounts, streamlined processes and undertaken cost-reduction initiatives.

Going by the focus on higher HP tractors, is there a larger industry trend favouring such tractors in India?

I don’t have specific numbers but can give you a generic trend. In the western and mature markets, the horse power per acre has been on the rise over the past few decades.

India is no different. Currently, going by numbers, we are the largest in terms of total industry volumes. But in value terms, we are nowhere near the mature markets.

Despite India being the most populated country in the world, there is a large scarcity of manpower in the rural markets.

The farmers have far more disposable income than they had in the past few decades and mechanisation is back in the focus. They also want to reduce their input costs, maximise their profits per acreage of whatever they cultivate.

Land blocks in India are small, but there is a lot of collaboration — in terms of labour or siblings getting together and introducing mechanisation concepts that can yield far better results than if they were to do it individually.

A combination of all these trends is fuelling the demand for larger HP tractors or, for that matter, any mechanisation products. These have contributed to the trend we are seeing now. This will grow in future.

How does moving from a tractor maker to a complete farm solutions provider help profitability?

Giving full mechanisation to the customer is not about market share, but more about mindshare.

Tractor is just one of the products; there are others to help the customer with whatever he does in the farmland. We are forming a strategy around the crop and have identified three or four crops for which we are looking at all possible mechanisation inputs.

As far as the margin or the profitability picture on this goes, right now, this business is in the nascent stages. We have started appointing crop solution dealers across India. It will be too early to comment on margins.

What is your strategy for the loss-making auto component business?

We are restructuring this business completely. We are taking few hard decisions like reducing the man power (blue collar) from the auto component division.

Second, there is lot of cost optimisation under implementation. Third, we are enriching the product mix. Fourth, we are looking at increasing the scalability of the business by getting into international markets.

Our focus is on well-known company names in the Europe, the US and Latin America. So we are looking at these markets more aggressively than the auto manufacturers in India.

Discussions are happening on expanding the network abroad. In many cases we have distributors and auto manufacturers to whom we have been supplying products in the international markets.

We are also looking at technology relationships. As a result of all this, we will see this business getting back to positive PBT (profit before tax) by 2015.

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Published on November 16, 2013
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