Escorts doubling of tractor production capacity
Chennai: The boom in tractor and farm implements sales all through FY18 has prompted tractor major Escorts to kick in a nearly doubling of production capacity within its Faridabad factory premises.
According to top company officials, Escorts is looking to take its capacity from the current 80,000 units a year to 1,50,000 a year by 2022. The tractor market has been booming in 2018 and Escorts saw more than 53% growth in February sales alone.
“In the next 12 months we will be ready for 120,000-130,000 units/year and then by 2022 we will take it up to 150,000 units capacity. Beyond that we will build a new plant,” said Nikhil Nanda, MD, Escort’.
The company had earlier planned to expand capacity at its Faridabad plant to 1,00,000 and has already given a green signal for machining capex. The expansion will be funded through cash accruals. Thanks to the buoyant demand, Escorts’ current capacity utilisation is 80-85%. “We expect the market to be vibrant in FY19 as well and our capacity expansion ROI is going to be good as it will be within the same location.”
The company also considering contract manufacturing and private labelling for international players even as it grows its export business. “This year we will do 2,000 units which is 100% yoy growth and the target next year is 4,000 units plus,” said Nanda. “We’re building strategic relationships and doing interesting propositioning on contract manufacturing. There is demand from international markets where both private labelling and contract manufacturing comes into play,” he added. Escorts is also commercially launching its compact electric tractor — showcased last year — globally and in India in 2019.
On the bottom line side, the company has undertaken an ‘ambitious cost reduction programme’. The target, said Nanda, is that even in worst recession, Escorts EBITDA margin should be double digit. And even though demand is now in top gear, Escorts is already thinking of life “without the current tailwinds. We want to get to teens EBITDA or a 3-4% improvement by 2022 but ideally in the next 2 years,” said Nanda. The company’s Q3FY18 EBITDA margin was 12%.“The tractor industry is expected to touch historic levels of 6,75,000-6,85,000 tractors in FY18,” said Nanda. “At FY19 too we’re looking at 8-9% growth and after that it should taper off to a flat off at 5-6%. By 2025, the industry should touch a million units,” he added. For Escorts that has meant gaining market share and a pan India presence. The company’s market share has gone from 10.3% in FY16 to 10.8% in FY17. “This year it should be 11%,” said Nanda. Also Escorts is improving footprint in its ‘opportunity markets’ where it was weak before. “Earlier we were weak in south and west but now we have gone from single digit to double digit market share in some of the states,” he added.