Escorts hosted a conference call on Oct 29, 2021. In the conference call the company was represented by by Shenu Agarwal – CEO Agri Division, Ajay Mandhar -CEO Construction Division, and Bharat madan – Group CFO.

Key takeaways of the call

Tractors sales volume of the company in Q2FY22 in domestic market was down 18.2% compared to 10.6% fall in industry.  However the exports sales volume of the company in Q2FY22 was higher by 65.2% compared to industry growth rate of 55.2%.

Strong underperformance by the company in relation to industry in Q2FY22 volume sales is largely as the company's strong markets of North and Central decline by 19% whereas the West and South, where the company is not that strong decline by 3%. 

Tractor sales for the industry is expected to witness some decline in H2FY22 on high-base. The company is expected its volume to be +/- 2% of the industry in H2FY22.

This year the sowing and harvesting cycle has got delayed.  The sentiment was weak during July-Sep 2021 period with delay in monsoon. But the situation on the ground is positive now. With monsoon come back the reservoirs are full and credit availability is also good. So the outlook is positive. Expect the month of November 2021   to be  good with positive sentiment on ground and customer who have not come and book are expected to come in the month of Nov 2021. 

The non-farm sales/demand of tractors that was subdued last year is witnessing improvement. Though the demand & sales has not reached the normal levels yet it is steadily improving this year and expect to reach normal levels in next 6 months.

Tractor market share of the company in Q2FY22 stood at 9% (down 80 bps from 9.8% in Q2FY21 and down 170 bps from Q1FY22 level).  Decline in company's market shares for tractor is due to higher industry growth in South and West regions in India, where the company has less presence.

The company maintains optimum level of inventory at channels as current period is peak season for tractor sales. However the company continues to maintain lower Inventory levels as compared to industry average.   Expects the inventory levels of the company to reach normal level by end of Nov 2021.

Rural sentiment remains positive on account of monsoon recovery and easy credit availability.

The company has taken 3 rounds of price hike in Nov 2020, April 2021 and July 2021. The price hike cumulatively works out about 7-8%. The company has pushed bac the price hike scheduled for Oct 2021 not wanting to hurt the peak season sales and likely to take a price hike of 3-4% once current peak season is over. 

The Farmtrac : Powertrac sales ratio  in Q2FY22 stood at 48:52 as against 45:55 in Q2FY21 and 43:57 in Q1FY22. 

Ratio of less than 40 HP tractors stood at 40:60  as against 37:63 in Q2FY21 and 40:60 in Q1FY22.   The company's higher HP tractors increased in the last 3 years driven by new launches and deep and wide market penetration.

Company is witnessing encouraging developments in construction and railway equipment segment too and is hopeful of a wider recovery soon.

Construction equipment (CE) volume sales in Q2FY22 stood at 1074 units, a growth of 30.8%YoY and 77.2%QoQ compared to 15%YoY fall in volume of served industry for the same period.   Sales volume of Backhoe Loader in Q2FY22 was down by 22% due to emission change transition, the sales volume of crane and compactor industry was up 19%YoY and 12%YoY respectively. Company is expecting strong equipment demand in second half of FY22.

In railway division, company is witnessing good traction. Order book of Railway business division of the company as end of Sep 2021 was more than RS 310 crore and this business is witnessing good traction.  Company's Railway Equipment Division (RED) recorded 6.2% growth on YoY basis driven by higher sales from new products.

Company expects EBITDA margins to be back to normal levels by Q3 FY22 as company is planning to take price hikes in November.

Going forward Management expects exports to improve on back of new product development.