Farm and construction equipment manufacturer Escorts Kubota aims to restore its operating margins to pre-Covid levels of about 12% in the current financial year and drive a high single-digit or double-digit growth during this period on the back of continued demand momentum, said a senior company official.
With expectations of a gradual decrease in commodity prices, we expect the margins to improve to 12-13% (in this financial year), which is at the same level as that was in the pre-Covid times… Currently, there is a 2-3% gap from that level.Escorts Kubota’s Group CFO Bharat Madan told ETCFO.
The finance leader noted that the last two years have been in the slow lane due to steep inflation. He said his two priorities for FY24 are to initiate the cost control measures within the company, both on the material cost as well as on the fixed costs, and drive growth to get back the lost market share in the last 2-3 years. FY24 growth
The CFO painted a positive outlook for the company’s all three segments namely, agri, construction, and railways. He sees the farm or agri segment growing in single-digit while the railways and construction segments are expected to continue growing in double digits, he said. In FY23, Escorts Kubota grew 16% at the company level, clocking INR 8,345 crore in operational revenue; the company’s tractors volumes grew 9.6%.
Madan expects the demand in the infra segments, that is construction and railways, to make up for the shortfall in the farm business if there is any due to El Nino’s impact. (El Nino is a climate phenomenon that is characteristic of extreme weather conditions and impacts normal monsoon; Its chances of developing are seen at 70% this year).
We don’t really have much of a concern (around monsoon due to El Nino) but a lot of it depends on distribution of it across various geographies and the key states which constitute the major segment for the tractor industry if they will be affected or not… As of now, we foresee a single-digit growth in the tractor industry.Escorts Kubota Group CFO Bharat Madan
For the company’s railway segment, the CFO said the order book stood at over INR 1,000 crore. While its outlook is positive, however, owing to the high base of last year, the growth in this segment is not seen as high as the 32% number that the company achieved in the year 2022-23, he said.
FY24 Capex
For the fiscal year 2023-24, the company has planned a capex of about INR 350 crore, up 40% from INR 250 crore invested in the year ended March 2023, Madan shared. However, this is separate from investments in the greenfield project.
The major portion of the increase of INR 100 crore in capex will go into meeting the compliances and ensuring the safety and quality of the manufacturing locations. Madan said that Kubota is introducing its production system in the factories and changes are happening in the existing setup too.
A portion of the capital investment will go into making manufacturing facilities more safe and robust. Another part of the investment will go into meeting the company’s ESG objectives.Escorts Kubota’s Group CFO Bharat Madan
Escorts Kubota plans to achieve carbon neutrality across the company before 2050, the CFO shared.
Escorts Kubota, in November, shared its mid-term business plan of investing INR 4,000-4,500 crore until FY27-28. With this, it intends to set up a greenfield facility to double its current capacity of 150,000 tractors to 300,000 units and add similar capacity for locally made Kubota engines which are being imported. “We have not finalised the location, it should be done this year,” Madan said.
The company closed the year 2022-23 with cash reserves close to INR 4,800 crore. Going forward, it is exploring options for inorganic growth opportunities in the farm implements segment.
Escorts Kubota operates in three segments in the country namely agri machinery, construction equipment, and railway products. The agri segment constitutes the largest with about 75% revenue share.
The company announced its Q4FY23 and full-year FY23 results on May 10. Its consolidated net profit grew 14% to INR 216 crore for the January-March 2023 quarter. Its consolidated revenue from operations rose to INR 2,214 crore in the fourth quarter as against INR 1,887 crore in the Q4 of FY22. The company recommended a final dividend of INR 7 per share of INR 10 for the financial year 2022-23.
