Escorts: Strong volume growth across its three segments aid Q4 show

Volumes, price hike aid Escorts's Q3 performance Helped by strong volume growth across its three segments of tractors, railways and construction equipment, Escorts reported a 40 per cent year-on-year (y-o-y) jump in its revenues for the March 2018 quarter (Q4). The performance, which was marginally lower than estimates, was led by the tractor segment, which accounts for three-quarters of the company’s revenues and over 86 per cent of the segment’s profits. 

Tractor volumes were up 57 per cent y-o-y, though realisations came in lower as compared to the December quarter, given the launch of products in the lower horse power and compact segments. But, margins for the segment continue to increase, with gains of 500 basis points (bps) in Q4 to 15.1 per cent. Margins for the segment for the full year came in at 13.6 per cent and the company believes there could be a 100 bps gain on the back of operating leverage as well as market-share gains. 

Going ahead, given the expectation of a normal monsoon, growth prospects of the tractor industry, up 22 per cent in FY18, is expected to grow in the 9-11 per cent range in FY19. While Escorts grew at a faster rate of 26 per cent in FY18, growth in the current fiscal, too, is expected to be strong on the back of normal rainfall, higher farm incomes and a pick-up in rural consumption. Growth rates for the sector and the company would come down, given the record volumes in FY18 (high base) and the challenge for Escorts to grow its markets in under-penetrated areas as well as non-stronghold markets.

Growth in the construction equipment segment, too, was strong with revenues up 44 per cent y-o-y for the quarter and 35 per cent for FY18. Margins for the segment doubled to 5 per cent in the quarter. The management indicated that the overall industry will grow at 16-18 per cent and the company is expected to outperform in the areas it is present in. The revenue growth for railway equipment, too, was robust as the revenues were up 14 per cent while segment profits were up 68 per cent. At 15.9 per cent, the railways segment is the highest margin business for the company and gains here (margins gained 500 bps y-o-y) added to the overall margins.