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 Dear Shareholder,
The Indian economy during the year has grown in all sectors and there has been a supporting growth in consumption that
has given the country a GDP growth of 8% in real terms.
Ironically however, the farm sector was confronted with many adversities that have reduced its growth to mere 3% and
was expected to decline further.
Whilst the country had a normal monsoon and harvested a good standing crop, the support price given by the Government
to the farmers was unattractive – in fact it was lower than the cost at which India was proposing to import wheat. This
has upset the agriculture market very extensively. The lapse of this crop income limited the farmers from raising fresh
loans for buying equipment and for some farmers they had to repay old loans. There has been higher NPA from farm
loans and hence lower lending by banks.
The above vicious cycle is proposed to be corrected a year later in the next wheat crop to be harvested in March-April ’08.
The Food and Agriculture Ministry has already fixed the support price and the standing crop is assessed to be good. The
farmers’ cash flow will thus become positive and business will begin to grow again.
AGRI MACHINERY
Your company with a long term view has been consistently improving its fundamentals. Towards this end, we have
expanded our product offering and technologically advanced the tractors to become more competitive for specific
products like –
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Lighter axle rice plantation tractor for South India |
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Orchard & Vineyard tractors |
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Heavy duty large tractors in the range of 70-80 hp for four wheel drive suitable for heavy duty haulage and use in
hilly terrain. |
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We have established our brand “Farmtrac” which carries a strong reputation of quality products and we will build on this
brand further. Our manufacturing quality has become consistent and the manufacturing processes have been refined. All
these will help us gain market share and give incremental growth beyond the country’s industry volume growth.
In the past year we lost substantially on our export volumes because of weakening of the Dollar by 12-14% which has
eroded our entire working margin of sale for export destinations. As a result we had to withhold exports to the Dollar
markets – mostly to USA where we have our own company and organisation to distribute, service and sell. We have
attractive margins and growing volume sales in export markets of Africa, Europe and South East Asia that will continue
to bring good export volumes for the company.
We have transformed the management leadership of our farm equipment and tractor business by bringing in a new CEO
who will cultivate a strong marketing culture in our company, as well as make strong focused efforts to unleash a cost
sensitive management culture and monetise the enormous value creation opportunities that this business is sitting on.
All of us at Escorts are very optimistic about showing significant gains and growth in our farm machinery business
by growing in volumes and concurrently reducing the cost of operations and achieving significant profitability from
Agribusiness.
The company’s market network of dealers has intensified and we are aggressively targeting market share gains through
new products for niche markets. This will strengthen our brand appeal and grow our business volumes over the next 2
years to reach 75,000 - 80,000 tractors. Tractor engines are being sold for industrial stationary use for which there is a very
attractive market opportunity, the market size at present being around Rs. 2,500 – 3000 crs. annually. In our efforts to add
more revenue from the existing investments, we have geared up to gain a sizeable share of this engine market.
Your company is bringing in technology for farm implements from European companies to add more productivity
to tractors and assist the farmer to improve his horticulture yields to meet the retail activity started by private sectors.
Additionally, for water management we are going to be distributing and selling laser land levelling equipment.
Escorts with the knowledge of customer market and farmer opportunity is now packaging a holistic offering to the
farmer specific for improving his present yields and ultimately his income from farming.
In summary as our fortunes linked with the performance of the agriculture sector rise with government interventions and
policies, the excitement within this business at Escorts is in unlocking its true wealth potential.
CONSTRUCTION MACHINERY - ECEL
Our subsidiary company Escorts Construction Equipment Limited is in an equally exciting mode of business opportunity
and demand growth. We have experienced extraordinary growth in demand and actual execution despite having limited
manufacturing infrastructure till we move to our new premises in April ’08.
The results are excellent as you would see from the comparative in-depth analysis of top line, bottom line and volume
line that is reproduced below:
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Estimated 31.3.2008 |
Growth over Previous Year |
| Equipment Sales Volume (Units) |
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4350 |
42% |
| Gross Sales Turnover (Rs. Crs.) |
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585 |
43% |
| Net Sales Turnover (Rs. Crs.) |
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520 |
43% |
| Profit Before Tax (Rs. Crs.) |
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40 |
50% |
ECEL has wisely well invested in a very intelligent and modern manufacturing plant capable of handling an annual
volume of 14,000 machines per annum. The major products to be built at this plant would be:
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Compaction Road Rollers |
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Pick and Carry Cranes |
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Forklift trucks |
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Loaders & Excavators |
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Slew Cranes |
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All the above machines would be in serial production at the new plant location from May-June ’08.
The retained earnings of this company are going to get stronger as the products which now have a growing demand are
more profitable than the Pick and Carry Cranes. The road programmes of India are now becoming major activities and
that generates a large demand for the products we manufacture.
ECEL has a mature well manned product designing department to design and develop improvements on our present
machines so that the products offered to the markets are always comparative with the international branded products
marketed. We also have exclusive Distribution Rights for India for some heavy machines that sell very well in major
worksites in India such as:
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Crawler Cranes up to 280 tonnes |
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Heavy duty and special purpose forklift trucks |
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Road paving machines |
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Motor graders |
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Tower Cranes |
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Equipment for Power and Telecom Utilities |
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For each of these products we have chosen a very competitive design from a reputed manufacturer who would give us
the supply support to meet the demands of our markets. These arrangements can be converted to licensed manufacturing
programmes at a later date if the demand of volumes from the market warrants local production initiatives.
ECEL will always be a high performance and high growth company because Construction Industry and business in India
is a high growing area.
AUTO SHOCK ABSORBERS AND RAILWAY EQUIPMENT – ASP & RED
Escorts also has a component business of Auto Shock Absorbers and Railway Equipment. The railways have growing
opportunities with traffic loads for both freight and passengers which warrants modernisation for which we have the
products and are also looking at relationships and synergies with international companies for a two way exchange of
technology products so that we have a bigger canvas to grow in the context of our future. Our plant in Rudrapur has also
given us good economic savings of tax and business growth.
Likewise in Auto Shock Absorbers, we are refreshing our entire manufacturing facilities to primarily export the majority
of our production that progressively will be actualised in the year 2007-08.
We have acquired excellent human skills at all the key function areas of the company and their collective efforts will
transform Escorts into a high performance company with strengths of marketing and financial controls. This change will
be progressive and will be reported by the management on a quarterly basis with the year ending in September ’08. These
results will also be reflected in the price quotation in the Stock Exchange of our listing because we hope to have good
growth on top line and bottom line.
The fitness of the company is better than it has ever been and we owe this all to the collective intellectual minds that now
serve the organisation to whom I am very grateful for their commitment to the company and to their profession.
I also want to place on record the cooperation we have had from the labour union who had a very constructive and
progressive approach with the management to help the company grow and with that growth help the employees grow
too.
I would also like to place on record the great help and advice I have had from the Board of Directors who have been very
supportive in this transition period till we actually reinvented ourselves.
Chairman and Managing Director
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