Agriculture and construction equipment maker is looking at a capital expenditure of Rs 350-400 crore in the ongoing financial year, enthused by a pick-up in demand due to an increase in economic activity.
Group chief financial officer Bharat Madan told ET that the outlook for all its three business verticals — agri machinery, construction equipment and railways — was positive as the market was witnessing a recovery.
The farm sector is seeing some positive tailwinds, amid strong crop prices and expectations of normal rains this monsoon season. This is expected to encourage farmers to spend more on purchasing tractors and other farm equipment. At Escorts, tractor sales in the local market in April-May rose by more than a fifth from a year earlier to 15,343 units.
Tractor manufacturers expect the demand momentum to continue through this fiscal year. Escorts sees tractors sales gradually improving — despite low crop yields in the rabi season due to extreme heat conditions — because of better commodity prices and forecast of normal rainfall.
The industry estimates the tractor market to grow 4-6% in the ongoing fiscal 2023. Tractor industry volume had dropped 6.4% to 842,000 units in FY22, after growing 26% in FY21.
“In the tractor industry, recovery has set in and volume-wise the outlook is positive this fiscal,” said Madan, adding, “Commodity/material prices too seem to have peaked in May. Though it will take 3-4 quarters to recover the increase in input costs due to the lag effect.”
Escorts gets nearly three-fourths of its revenue from the sale of tractors.
In the construction equipment segment, demand is expected to increase in healthy double digits in the ongoing financial year on the back of increased government spending on infrastructure projects, especially in rural areas. The industry estimates sales of construction equipment (domestic and exports) to grow 15-20% in fiscal 2023, compared with an 8% fall last fiscal year.
Escorts expects sales of construction equipment to pick up from the second quarter of the ongoing fiscal year.
“In railways too, there is a lot of pent-up demand. We are seeing good traction in tendering, with renewed government focus on development of infrastructure,” Madan said.
Given the opportunities in the Indian market, Escorts is in the process of formulating a mid-term business plan, along with partner Kubota of Japan. The investment plan, detailing focus areas in product and capacity development, is likely to be finalised in the next 5-6 months.
Last fiscal year, Escorts reported a 12.4% decline in net profit to Rs 765.6 crore amid an increase in input costs. Revenue from operations rose 3.2% to Rs 7,152.7 crore.