Escorts, India’s fourth largest tractor manufacturer, has lined up a capital expenditure (capex) of ₹350-400 crore for FY23, marking a significant jump from its typical annual spend of ₹200-250 crore. The spruced-up spend will be used in manufacturing, products, and for switching to gas-based gensets from diesel following an NGT order.

Bharat Madan, Group Chief Financial Officer, Escorts, said, “We are planning a capex of ₹350-400 crore this year. We are working out our mid-term business plan, so this figure could change, but for now we are going ahead with this number. Most of it is split between manufacturing and product.”

An order passed by the National Green Tribunal directs a switchover to gas-based gensets from diesel gensets in view of the rising pollution levels in the north. The executive, in an interaction with BusinessLine, said that escorts may have to incur a cost of ₹100 crore towards this.

In the last financial year, Japan’s Kubota Corporation bought controlling stakes in Escorts in a ₹9,400 crore deal to become the joint promoters in the company and also assume part control of its management. Kubota is believed to be preparing a multi-year blue print for Escorts which will have details about investments, products, and other aspects of operations.

“The plans have been kicked off and by September-end we should be ready with it. We would have more clarity on the roadmap in terms of product portfolio, investment, brand and channel strategy. As of now, we are continuing all the brands we have,” Madan added.

Cost pressures

Commodity cost pressure has been such that manufacturers have been forced to undertake multiple price increases in tractors over the last several quarters. Escorts have increased tractor prices by 10–12 per cent over the last six quarters. It took a price hike in mid-April and warned of further hikes for the rest of the year to offset the cost pressures.

“The pressure increased further in the last quarter, which still needs to be passed on, and that’s the cost which will hit us in Q1. Whatever increase we suffered till December has been fully passed on, but the inflation from January onwards has been absorbed and needs to be passed on. There will be an effect of this on profitability because of the lag, “Madan said.

Escorts saw a fall of 34.5 per cent in volumes during the March quarter to 20,272 units. This fall was bigger than the 25.7 per cent drop in industry’s volume during the same quarter.

The company, however, is confident of a strong pick-up in the June quarter given the forecast of sufficient and early onset of rains. Escorts’ tractor volumes in April grew 41 per cent, signalling a revival in demand which is expected to be sustained in May and June.

Electric tractors

Escorts was among the first in India to showcase an electric tractor. While this tractor is yet to be launched commercially in India, it has been exported to Europe for some time. The company is in the process of finalising the ‘Go to Market’ plan for electric tractors for India.

“We have already commercially launched the electric tractors in the export market to Europe. We got a large order for them from the US. Kubota has also shown interest in sourcing these tractors,” Madan said.