Release Date: August 01, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- EBITDA margin improved to 14.3%, up 22 basis points YoY, driven by better product mix and cost control.
- PBIT reached INR 388.1 crores, marking a 2.5% YoY increase, the highest ever for the company.
- Net profit increased by 2.4% YoY to INR 289.6 crores.
- Construction Equipment business saw EBIT margin rise to 10.4% from 7.6% YoY, due to better utilization and product mix.
- Railway division successfully supplied its first-ever electric control panel order and completed a major project reassessment with DMRC.
Negative Points
- Operating revenue declined by 1.5% YoY to INR 2,292.5 crores.
- Tractor volume decreased by 3.2% YoY to 25,720 units.
- Construction equipment volume fell by 3.5% YoY to 1,325 machines.
- Railway shipment revenue dropped by 18% YoY to INR 244.7 crores.
- Export volume for tractors declined significantly, impacted by challenging market conditions in Europe.
Q & A Highlights
Q: How do you see the trends in the domestic tractor industry for the coming quarters, and do you see a trigger for upgrading full-year estimates? Also, what are your market share expectations and focus on new products?
A: Neeraj Mehra, Chief Officer, Tractor Business Division: The industry has been at par with last year, which is positive. We anticipate about 5%-6% growth for the entire year, driven by positive rural sentiments and government initiatives. Our focus remains on growing market share in the northern and western parts of the country. We have seen growth in market share in these regions and are optimistic about the upcoming festive season. The Worldmaxx Tractor launch is expected around the festive season, and another series is planned for October-November.
Q: Can you provide an update on the integration of the Kubota distribution network globally and the launch timelines for Brazil and the US?
A: Bharat Madan, Chief Financial Officer: Our major exports are to Europe, which has been impacted by inflation and inventory corrections. We expect a pick-up towards the end of the year. Entry into North American and Brazilian markets will take time, dependent on the greenfield facility, which is still three to four years away. European products will be ready by the third quarter this year, and exports should pick up in the last quarter of this fiscal.
Q: Could you refresh us on the emission norm timelines and the merger with Kubota India entities?
A: Neeraj Mehra, Chief Officer, Tractor Business Division: The emission norms date remains April 1, 2026, with no changes expected. Bharat Madan, Chief Financial Officer: The merger hearing was in early July, and we expect the order soon, aiming for effectiveness from September 1. This integration will help leverage each other's channels and product portfolios, potentially accelerating our mid-term plan.
Q: What is the outlook for tractor volume growth in FY25 and FY26, especially geography-wise?
A: Neeraj Mehra, Chief Officer, Tractor Business Division: We expect the western and southern parts of the country to show reduced degrowth and possibly positive trends. The northern region has seen a 5% growth in the first quarter, and we expect this to continue. The eastern region saw a surprising 40% growth last quarter, which we do not expect to sustain.
Q: What are the sustainable margins for the Construction Equipment business, considering commodity price increases?
A: Bharat Madan, Chief Financial Officer: At current volume levels, margins are sustainable despite some commodity price pressures. The margins are driven by better product mix and market share gains in the pick-and-carry crane segment. We expect double-digit growth post-monsoon, which should help maintain these margin levels.
Q: What is the status of the new plant and its impact on the mid-term business plan?
A: Bharat Madan, Chief Financial Officer: The new plant proposal in Rajasthan faced issues, and we are now looking at alternate sites in Haryana, UP, Maharashtra, and Gujarat. This greenfield facility is crucial for our mid-term business plan and domestic market volume aspirations.
Q: What is the outlook for the Railway Equipment business, and what are the sustainable margins?
A: Ankur Dev, Chief Officer, Railway Equipment Business Division: The industry for LHB type of passenger coaches is flat, but we are developing components for the growing Vande Bharat platform. We expect to continue double-digit growth with new product introductions. Sustainable margins should be in the range of plus-minus 200 basis points from current levels.
Q: What is the revenue and margin outlook for Escorts Kubota India Private Limited and Kubota Agricultural Private Limited?
A: Bharat Madan, Chief Financial Officer: Combined revenue for the first quarter was around INR500 crore. We expect growth in line with the industry, around 5%-6%, with better EBIT margins. The second half should be much better due to business integration and seasonal factors.
Q: What is the strategy for Kubota tractors in light of declining market share in the South?
A: Bharat Madan, Chief Financial Officer: The strategy involves leveraging our product portfolio and Kubota's network post-integration. This will help Kubota gain market share by offering a broader range of products. The positioning will remain premium.
Q: What is the target for the component business over the next two years?
A: Bharat Madan, Chief Financial Officer: The component business is just starting, with a potential target of INR500 crore over the next two years. This will involve sourcing from India and exporting, with a focus on localization.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
