Ladies and gentlemen, good day, and welcome to the Escorts Kubota Limited Q1 FY 2025 conference call, hosted by PhillipCapital (India) Private Limited. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Saksham Kaushal from Phillip Capital.
Thank you, Sumit. Good evening. On behalf of Phillip Capital, I welcome you all for Escorts Kubota Limited's Q1 FY25 earnings conference call. I also take this opportunity to welcome the management team from Escorts Kubota Limited. Today, we have with us Mr. Bharat Madan, Full-Time Director and Chief Financial Officer; Mr. Neeraj Mehra, Chief Officer, Agri Machinery Business Division, Domestic Sales; Mr. Sanjeev Bajaj, Chief Officer, Executive Construction Equipment Business Division; Mr. Ankur Dev, Chief Officer, Railway Equipment Business Division; Mr. Sanjeev Gupta, Head Finance and Tax; and Mr. Prateek Singhal, Investor Relations and ESG. We will start the call with brief opening remarks from the management, followed by Q&A.
Before we start, I would like to add that some of the statements made by the company in today's call will be forward-looking in nature and are subjected to risks as outlined in the annual report and investor releases of the company. Over to the management for their opening remarks. Thank you.
Thank you, Saksham. Good evening, everyone, and thank you all for joining us today. Few highlights of company's standalone financial performance for quarter ended June 2024 are as follows: operating revenue at INR 2,292.5 crore, down by 1.5% YOY. Tractor volume at 25,720 tractors, down 3.2% YOY. Construction equipment volume at 1,325 machines, down 3.5% YOY. Railway equipment revenue at INR 244.7 crore, down by 18% YOY. EBITDA at INR 327.1 crore, up as against INR 326.9 crore YOY. EBITDA margin now stands at 14.3%, up 22 basis points YOY, mainly led by better product mix and price realization, effective cost control, and softening in the commodity prices.
PBT at INR 388.1 crore, up by 2.5% YOY. Highest ever net profit PAT at INR 289.6 crore, up by 2.4% YOY. On consolidated basis, company financial performance for the quarter ended June 2024 is as follows: total revenue at INR 2,416.2 crore as against INR 2,449.5 crore YOY. EBITDA at INR 325.3 crore with margin of 14.1%. Net profit at INR 293.1 crore, up by 1.1% as against INR 289.9 crore YOY. Moving on to the segmental business performance, starting with agri machinery business.
In Q1 FY 2025, total tractor industry volume, domestic plus export, was at 2.87 lakh tractor as against 2.85 lakh tractor in the corresponding quarter. Our total volume was at 25,720 tractor as against 26,582 tractor in the corresponding quarter. On the domestic front, the tractor industry in Q1 FY 2025 at 2.62 lakh tractor was almost at par with respect to the corresponding quarter, and our domestic tractor volume stood at 24,759 tractor as against 25,226 tractor in the corresponding quarter. On the export front, the tractor industry in Q1 FY 2025 at 24,600 tractors as against 24,200 tractor in the corresponding quarter.
Our export volume came at 961 tractors as against 1,356 tractors in the corresponding quarter, impacted primarily due to challenges in our key market of Europe, which are experiencing recessionary conditions and higher interest rates, thus leading to inventory correction across continents. During the quarter, sales through Kubota Global Network account for approximately 21% of the total export. Segmental revenue was up by 0.6% to INR 1,676 crore, as against INR 1,666.8 crore in the corresponding quarter. EBIT margin for agri machinery business were at 13.2% as against 13.4% in the corresponding quarter, and as against 11.2% in the sequential quarter. Moving forward into FY 2025, we anticipate that the domestic tractor industry may experience mid-single- digit growth.
This growth will be driven by various sectors, such as increased monsoon coverage, government assistance, improved crop prices, enhanced liquidity, and expanded access to the credit. Coming on to the construction equipment business, in Q1 FY2025, our CE industry volume for crane, backhoe loader, and compactor saw a modest increase of 1.5% as against corresponding quarter. This growth was primarily driven by compactor industry, which experienced growth of roughly around 17%. Our total volume of manufactured and traded products were at 1,325 machines, as against 1,373 machines in the corresponding quarter. Segmental revenue went up by 2.7% to INR 369.7 crore, as against INR 360.1 crore in the corresponding quarter.
... EBIT margin for the construction equipment business and quarter ended June 2024 went up to 10.4% as against 7.6% in the corresponding quarter, led by better realization and improved product mix. Construction activities on the ground are currently slow on account of timely and good monsoon progressing in the country, and due to formalization of and stabilization of the government post-election. However, with the government continuing thrust on infrastructure development, we anticipate demand to improve post-monsoon season. Moving on to the railway division, revenue for the quarter ended June 2024 at INR 244.7 crore as against INR 297.7 crore in the corresponding quarter. EBITDA margin for the quarter ended June 2024 came at 20.5%.
During the quarter, we have successfully supplied the first ever electric control panel order to prominent metro organization. Additionally, we successfully completed the refurbishment of the train project with DMRC. Our order book for the division at the end of June 2024 is approximately INR 880-odd crore. Now, I will request the moderator to open the floor for the Q&A.
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on the touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use headsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Raghunandan N.L. from Nuvama Research. Please go ahead.
Thank you, sir, for the opportunity. First question was on domestic tractor industry growth. The start has been reasonably good, as you alluded to in the opening remarks. North region, Central region, West region seem to be seeing growth, and the rainfall progress has also been positive. Even in the South region, the worst seems to be behind. So I was trying to understand how you see the trends in the coming quarters, and do you see the trigger for upgrading the full-y ear estimates? Also, if you can talk about how you think about market share of Escorts for the full- year and your focus on new products.
Hi, good evening, Raghu. This is Neeraj Mehra. On the industry front, the industry has, to a certain extent, been at par with respect to last year, against the normal thought of the drop that almost everyone was expecting. So this is a very positive sign. This is primarily due to the fact that all the forecasts of about normal monsoon have made the rural sentiments pretty positive. Also, the kharif sowing exceeded last year's level by about 7 odd %. Also, the government's initiatives in terms of raising the MSP of kharif crops has helped improve the positive sentiment.
Now, it is a bit premature to comment on the entire year on how the industry will progress, but as of now, we see that, about, we're looking at about 5% or so, 5%-6% of industry growth for the entire year. We'll see how the industry pans out over the next two months, and then more prudent call can be taken. On the CLE side, at a zonal level, it was very surprising to see the eastern part of the country that is basically the rice bowl or what we call our opportunity market. The industry growth was pretty substantial over there, close to about 40%. South, the industry drop still persists. It's come down to 20%. It was higher last year.
It's come down to 20%, and this continuous drop in South has actually reduced the contribution of the southern markets to 12%. North has seen a growth, which is a good sign for us. West, again, Maharashtra has improved over last year, but Gujarat has dropped in terms of industry. So overall, West was marginally less than last year. So the signs are positive, and we are hopeful for a pretty good financial year starting with the festive season in September.
Got it, sir. Thank you. If you can talk about your market share expectation, your efforts on new products and the WorldM ax tractor, that would be helpful.
Hi, Raghu. So, overall, I had mentioned in the previous calls as well, our focus in terms of growth of market share remains in the northern and the western part of the country, which currently contributes about 75% or thereabout of the total all India industry. We have in the last quarter grown market share overall in the North zone as well as in the West zone. So things are looking positive for us. We have dropped market share to a certain extent in the eastern part of the country, where the industry growth was phenomenal to an extent of 40%, and our volumes were not in sync with that. That is on the industry part.
Yes, we are pretty positive of market share growth, though the quarter one has been a bit subdued. On the new product side, yes, the WorldMax launch is actually, we have started the introduction of WorldMax in a very phased manner in select locations, but our full-fledged launch is expected around the festive season. Also, there's another series on the farm tractor range, which is on the anvil, and hopefully we'll be able to launch that also in October-November period.
Thank you, sir. Wishing you all the best. My second question was on exports. Export through Kubota channel is at 21%. Earlier, it had gone as high as 30% plus. If you can talk about the update on integration of distribution network globally, and, you know, by when that would happen. Also, if you can provide a status on the launch timelines for Brazil and U.S., and if you can give some color on the growth prospects.
So as I think Prateek mentioned, so our major exports, 60% of the exports happen to the European market. So if you look at the industry, the growth, which is happening in export, which is very nominal, but still it's a growth, about 1.5%-2% in the first quarter, has been essentially because the dispatches happening to the North American and Latin American market, where we are not present. But the players who are actually exporting to European countries are seeing a decline, because in Europe there is an increased inflation and, stocking with the dealers. So correction is happening in the inventories, and the demand also has been subdued for multiple quarters now. So our export to Kubota were also happening to Europe, which has been impacted, right now.
But they are also expecting maybe the pickup will start happening towards the end of this year. So in fact, we had a discussion with the board members who is also there, you know, and is heading the European operation. So we sounded positive towards the end of the year, but I think initially there has been some, I think, impact because of these changes which has happened and the inflation impact which has been seen in the market. But we expect the pickup will happen. I think regarding our entry to North American and Brazilian market, I think we had already mentioned it will take time, because first we need to be ready with the product portfolio it's required for each market. Large portfolio is dependent on the greenfield facility, which will come up, which is still three-four years away.
So it will take some time. There are certain products which we are now looking at developing for those market. So that will happen only by a, sometime in the next year, middle of next year, in April 2026. The European products are being made ready, like we mentioned the last call, so that will be ready by third quarter this year. So there we expect export will start picking up, you know, towards the last quarter of this fiscal.
Thank you, Bharat sir. I have more questions. I'll come back in the queue.
Sure.
Thank you. The next question is on the line of Gunjan Prithyani from Bank of America. Please go ahead.
Yeah. Hi. Thanks, team, for taking my questions. I just had follow-up on the industry outlook. Could you refresh us if there is any update on the emission norm timelines, and what does it mean for the industry outlook? And also, you know, where are we on the merger with the Kubota India entities, if there is any progress in that direction?
Hi, Gunjan. Neeraj this side. So, on the emission norms, the date remains fixed as of now. There's no change, first April 2026. So for the current year and better part of the next year, we don't see any much impact on the tractor industry. The Tractor Manufacturer Association is in talks with the government regarding the finalization of the date, but currently the date remains as first of April 2026. On the merger part, I will ask Bharat sir to take the question.
So, Gunjan, merger, we had this hearing in the first week of July, where the order for merger has been reserved by NCLT bench, so it can be pronounced any day, and we are expecting it should happen soon. Now, within this one, we should get this order so that we are able to make it effective from first of September. The chances are very fair that we'll get it in this one now.
Okay. And, directionally, what does it mean from, you know, execution of the mid-term plan or strategy that we had laid out? Because I think, correct me if I'm wrong, I think this, this exercise took longer than what we were expecting earlier. Now that once it's done, we have the approvals in place, is there a case that, you know, you see acceleration on some of the initiatives that you had laid out for the mid-term plan? You know, is there, is there a change that we should keep in mind after this merger is, is approved?
So I think we've given the integration, which has been slightly delayed, but I think the idea was that we should be able to cross-leverage each other's channel and the product portfolio, which is one of the other concern area of Kubota. We don't have enough product range in India, so that's why we are very restricted and limited market player with a very small market share. I think the idea is once the merger happens and the integration starts happening, we should be able to utilize their channel also. They've got about 300 dealers network in India, and Escorts has about 1,200 dealers. So if we are able to leverage their strengths and also cross-sell our products, so it should actually lead to some positive, you know, momentum on the sales and market share side.
So that is something which is in plan, which we intend to do, once the integration is completed. Obviously, it will take some time because post-merger there are some obviously integration issues which need to be fleshed out, so maybe it will take few months before you see this impact coming in, you know, in the results.
Okay. And, the other question, Bharat sir, I had was on the, on this whole new, you know, new structure to the organization. You know, it's quite interesting that you've now carved out, you know, different, sub-segment for engines, different sub-segment for, Agri-product solutions. So anything that, you know, you want to share why the change in structuring? Are you seeing some of these businesses scaling up meaningfully? You know, just some thoughts around what does it mean in terms of operating structure of these businesses. You know, there are six segments that you call out, so, you know, some thoughts around that.
So, Gunjan , the idea of carving out these businesses was to align with the Kubota group. So they also have the similar verticals in terms of revenue. So within Agri, they got four verticals for tractors, and then they have for Agri- solutions, which is essentially implements, harvesters, transplanters, and then they got engine, which is a very large business for them. And then there's spares and service, you know, which is again, another large vertical. So since the obviously reporting for the organization is also dotted line to the head office, to the parent company, so the similar division heads who are there in Kubota head office will be also looking at these businesses independently. So this is one of the reason why we segregated these four businesses, and these will remain focus area for us.
So if you look at individually on other three verticals, you know, which we think can actually drive our revenue significantly higher, whether it's in the solution business or engine business, which is also picking up significantly now within Escorts as well as in Kubota, and spares and service. So all three have the potential to cross INR 1,000 crore business in next four-five years, which is also a mid-term business plan, you know, objective to do that. So we think with this revised structure, the lot of focus will come from the teams in delivering and driving those numbers. So this is the reason, you know, we wanted to align it with the parent company.
Okay, got it. Thank you. And this last question, commodity, anything that we should bear in mind? Because steel sort of remains benign, so should we think still work with 13%-14% EBITDA margin, or there is a case that, you know, it sort of shoots above the 14% range also, given, you know, as operating average picks up in second half?
So in first quarter, we did not see the inflation impact of commodities, but I think in the second quarter, we are getting the impact now. Already started getting, you know, price increases are being given to the suppliers. So there is pressure on the rubber prices, globally, and the rubber are going up, and there's also some compliance issue with the tire companies, which is leading to price increases, and we are also passing it on in Q2. Same way, some increase happening in the customs, too. You know, this is based on, we're normally a portion of the lag of a quarter, so based on the last quarter numbers, we are going to pass it on in this quarter. So there'll be some inflation pressure, which will come in Q2.
But in anticipation, the pricing increase was taken in the Q1 itself, having taken the pricing increase from sometime in May. So we should be able to offset the, cumulative, you know, material cost impact for some. So on the margin front, I think we expect the margin should remain within this range, with the indication we have given. On tractor, we see some positives, possibilities are there, going forward, because as your volumes pick up, the operating leverage should play. So that should be able to drive some, you know, better margin.
Got it. Thank you so much.
Thank you, ladies and gentlemen. Ladies, the next question is from the line of Mitul Shah from DAM Capital. Please go ahead.
Sir, thank you for the opportunity. Sir, first question is again on tractor volume growth outlook for FY 2025 and 2026 also. So in terms of this mid-single- digit growth of about, say, 5%, how do you see geography-wise growth coming in? Because as so last two-three years, north has witnessed very high growth, all-time high, record high volumes coming from UP, where for the month of July, roughly 11%-12% growth coming in. So do you see this trend to continue? Or because south base is almost 30% lower than the previous peak, the south and Maharashtra can record much higher growth, or there will be disproportionate growth from these geographies.
Hi, Mitul, this is Neeraj Mehra. So overall, if you see, the western part of the country and southern part of the country, both, they are still showing a negative trend. The quantum of degrowth has reduced. So we feel that going forward, this will further reduce, and we should be able to see some improvement in terms of industry, both in the western part of the country and south. In the north, the industry growth is for the first quarter 5%. It's not very high, and looking at the current sentiment and overall scenario, we feel that this growth will be there. The surprising element last quarter was the eastern part of the country or the rice bowl, which witnessed a 40% growth.
We do not see that kind of growth coming in again as we go forward. To summarize, North will see a continuous, or similar growth. South and West will, the degrowth will get, substantially reduced as we go forward.
... so still South and West will continue de-growth, though it will be at a very low quantum. Is it right? Am I understanding right?
So, West could show a positive trend because Maharashtra has already shown a positive trend. Only Gujarat is negative. Maharashtra has already come in, into a positive. So we feel West will surely be, show a positive movement. In terms of South, at this point of time, it's very difficult to comment because, the reservoir levels, though have improved from, a very low 20% to the 40% with in the latest report that has been shared. We still feel that, South will, not, perform on the positive side.
That should help us on the market share side, right, as we are stronger again on the North.
Yeah, hopefully.
Second question, again, on this frame, which is indicated April 26th as a implementation date. Any possibility, as indicated by few other tractor players, it may get delayed by two or three years?
No. As of now, there is no significant communication on this front. Both the TMA and the government are still in discussion on what needs to be done. But as of now, it's difficult to comment on whether this will be delayed. The ministry has been firm in their last communication to go ahead with the first April 2026 date.
So last question on construction equipment margins. Despite Q1 seasonally weak, we have recorded double-digit margin. How sustainable are these? And in context of commodity prices going up, particularly tire and steel prices, which is a higher portion of the overall commodity for construction equipment, how one should look at coming quarters?
It looks like that these sort of volume... Sanjeev, you want to go ahead, please?
Yeah, yeah. No problem. You can say.
So at these levels of volume, we expect the margins are sustainable, even though there may be some upward movement in the pricing. But we think the commodity side, so we should be able to pass this on to the market. So the margins are also driven by a better product mix, and also there's a gain in the market share in our pick-and-carry crane segment, you know, which is very important in this industry. So that is also helping us, and we expect these margins should be able to sustain. And we only expect the growth to happen post-monsoon in the equipment spares, too, and that should be a double-digit growth. Maybe October onwards, we should see that growth happening. So that should only help in, you know, maintaining those margin levels at the current level.
Sanjeev, you want to add the market perspective?
I think, yes. So we are expecting that the volumes will improve, post-monsoon, so that should help us to sustain the growth. But at the same time, there is a little bit of risk of commodity shooting up when the volumes go up and the demand go up. So that's the only caution which we have in mind, but we feel that this level should be sustainable.
Thanks, sir.
Thank you. Ladies and gentlemen, in order to ensure that the management is able to address questions from all participants in the conference, please limit your questions to two per participant. Just a reminder, anyone who wishes to ask a question may press star and one on the touchtone telephone. The next question is on the line of Jinesh Gandhi from Ambit Capital. Please go ahead.
Yeah, hi, sir. My question pertains to the price hike you mentioned we have taken from May. This would be, what, about 2%, or, or would be lower than that?
No, it was a marginal price increase, I think closer to 0.5%-0.6%, which was because the commodity prices have not gone up in the last quarter. So we've seen that-
Okay.
-trend happening only now. So in anticipation, we have taken the increase to offset any possible inflation which will happen and which we'll see now in Q2.
Okay. So we don't need to take any material price increase going forward, unless until there is further inflation in commodity. Is that the right understanding?
Yeah, we don't expect industry will pass on. There's a nominal increase which is happening on the commodity side. So, so far in the first half, I look at cumulative basis, there's not much impact. So we don't expect that we will take that view and further, further price increase. But obviously, we'll closely keep watching the competition, too, and if there's a possibility, we'll definitely cover them.
Got it. Got it. And, secondly, you mentioned about the export side, where in North America, mid-term, we will need to develop products which would be in sync with the greenfield plant which we are looking at. Are any other mid-term business plan targets be it the market share target, which we are talking of, or agri-machinery revenues target, which you're looking at, dependent on the greenfield plant, or that should be attained irrespective of whether the greenfield plant comes before that period or not?
See, for the American market, it was dependent on greenfield facility only, because they are totally new product, different from what we are making in India. So we'll have to really start from scratch, and there, the work is already starting now. Discussions have started happening with the North American team. So obviously it will come up only with the greenfield facility, and that is what the plan was also, you know, in the mid-term business plan, that only this will happen from there. The existing portfolio, like we mentioned, we exporting is mostly to the European market other than the SAARC countries and some of the African countries. So Europe is a big market, which is the growth for have happened I think for the industry also. For smaller tractors, particularly the compact segment is doing extremely well there.
So that's where I think the product development is happening, and this is also part of our existing portfolio, which was only to be rebranded with some tweaking, which has been done. So these are the low-hanging fruit which we are able to get, and that probably will continue till the time we see more product development happen for this growth market.
Okay. Sorry, my question was more so for the India market share, target of mid-teen or high-teen market share. Would we need the greenfield plant also to support that aspiration, or, or we can do it from the total capacity which we have today between our Escorts standalone and the JV plant there?
No, obviously, if we are looking at the volume expectation for the mid-term business plan, we will need greenfield facility, definitely. So that is also the reason why we had planned it there. So besides export, it will also help in the domestic market, volume. From the existing capacity, as you know, between the JV and us, it's closer to 170,000 tractors. And I think you look at the numbers of JV and us, it will be already, 125,000-130,000 solid numbers with us. So we don't expect this capacity will be enough going forward, maybe after a year or so, we'll manage it, be looking at alternates. So that's why greenfield is important aim for domestic aspiration for us.
Got it. Got it. And last question on the railway business is, we have seen a stagnation in order book, or in fact, has moderated, over the last two years. What is happening in that business? I mean, is the tendering activity yet to come back post-COVID, or the focus of government is on different segments where we are not present? How should one look at this business going forward?
Yeah. Hi, good evening, Jinesh. Ankur Dev here. So, there are different type of rolling stock which are being manufactured in India. The existing one is LHB type of passenger coaches, and now the government is moving towards Vande Bharat platform. Moving on to the, I would say, passenger coaches, within that, they are doing the sleeper type of coaches, chair car, and metro. So, right now, the industry for LHB type of passenger coaches is almost flat in last two-t hree years, where we have all type of components, whereas the industry is growing in Vande Bharat passenger coaches. So right now we are in the development stage of developing these components for these type of rolling stock, where the industry is increasing.
We have already secured the initial orders for these coaches, whether it is brakes, couplers, dampers. Now we will be supplying the first orders in these product family. Once these are supplied, we complete the necessary field trial, we will be able to supply these components for Vande Bharat coaches for the regular orders also, the bulk orders. So, and with that, we should be able to see the growth momentum in the railway also, with the desired Vande Bharat growth. I hope I was able to answer your question.
Yeah. So this year we should be looking at mid-teen growth or it will be lower than that?
With the introduction of many new products, we expect that we should be able to continue the double-digit growth as we have done in the last few years.
Okay, great. Thanks. All the best.
Thank you.
Thank you. The next question is from the line of Pramod Amte from InCred Equities. Please go ahead.
Yeah, hi. So this is with regard to the tractor industry, and your invention. And also wanted to check where they are. And if I had to look at your volume, they are up almost around 20% on QOQ. But your capital employed in the business has shrunk by almost around 8%. So, and this is, you are entering the peak of the season. So any change in the way you guys are looking at this business?
No, there's no significant change. The capital, I think, in the business has reduced only by about INR 200 crore. Finally, some improvement in working capital, which has happened, some inventory question, which has been there across the organization. As I saw the first quarter, we had lower production numbers to correct the own inventory, which we had, you know, within the plants and depots. We don't expect there's any significant change in the business model as such. We think the similar trend will continue. As of now, we're seeing some liquidity pressures which have still been there in the whole market, especially from a dealers' working capital perspective, which still has some pressure on the receivable side.
But we expect as we get into this post-monsoon period with the festive season, we expect, I think, that pressure should start easing out and when we see more money in the hands of the customer. So that should actually ease out. So we should see further improvement actually in the working capital towards the year-end.
What is the spend now for the new plant, and what is the status? When do you expect it to come through?
The new plant, the earlier proposal was to set it up in Rajasthan in the area called Jalore, but because of some issues there, where the water availability was a major issue for industry use, which was not available. So obviously for us to go ahead with that project was not possible, because we're looking at it 20, 30, 40 years in future. So that's why we had actually withdrawn the expression of interest tender to the RIICO, the Rajasthan Industrial Investment Corporation. So we are looking at alternate sites now, in the states of Haryana, UP, Maharashtra, Gujarat... and obviously, our preference is to be within North, so Haryana would be, obviously, will be the preferred choices, but we'll still are open to look at all four states. So we're still not shortlisted.
We got some interesting propositions from the state government. We're still evaluating, and I think after that is finalized, then we will keep the market informed.
Sure. Thanks a lot.
Thank you. The next question is from the line of Abhishek Jain from Alf Accurate Advisors Private Limited. Please go ahead.
Sir, thanks for opportunity. Sir, what was the revenue of Escorts Kubota India Private Limited and Kubota Agricultural Machinery Private Limited in first quarter FY 2025?
Hello?
Hello.
Closer to INR 500 crore, roughly, you know, for the two JVs combined.
Hello?
Hello, Mitul Shah, please go ahead.
Hello.
Yes.
Yeah, please go ahead.
Yeah. Thanks for the opportunity. So again, I have a question on this five-year vision plan and this global strategy, expanding global footprint with the help of Kubota. In view of this, cancellation of Rajasthan related project and searching new lands as well as product launches getting delayed, any possibility of revising our five-year vision plan guidance downward or delaying the target by maybe two-three years?
Yes, Mitul, there will be some work which will happen, so obviously there will be a revision which we intend to do this year. So based on the current product development, obviously, the earlier plan was based on certain assumptions on what sort of products will come, how the integration will work for the company and the channel, how the cross-selling will happen. So there are some changes which have happened in the assumption, and based on that, they need to rework on this mid-term business plan, which we intend to revise, you know, maybe sometime during this year. I think that once certain revision happens, so there will be some delay there, yes, I think from the numbers we're looking at. But I think it's difficult because we are trying to cut down on this timeline and see how much we can expedite.
I think right now the engineers are working on that product development teams, and they will come back and we will have a better idea, you know, in terms of overall we looking at these numbers, and then we will come back to you guys.
So secondly, on the export side, again, as we have done some consolidation of the dealers in overseas markets, as well as we're planning to launch new product next year, but considering ongoing slowdown in Europe and U.S.A., particular in the tractor side, what would be change in strategy for near term or maybe next one to two years? Do we go slightly slow for next one or two years, or we'll still maintain to be remain aggressive with a number of new launches under retail brand, with the homologation and all completed by this next one or two quarters?
On export front, I think the team will remain aggressive, because that's one opportunity, which is one of the reason for this partnership with Kubota. So that is something which the global team also is very keen. They are looking at India as a major sourcing base for them. So obviously, that aspiration remains. So the idea is to expedite the things, expand the product portfolio, which we can use for exports, and start executing that. So I don't think there will be any slowdown in the aggression, I think on this front. Yes, there may be temporarily, like I said, because of product development cycle and some of the quality improvement issues which they need. There may be some delay which may happen, but I think the long-term direction remains similar, you know, on export.
Thanks and all the best, sir.
Thank you.
Thank you. Ladies and gentlemen, just a reminder, anyone who wishes to ask a question may press star and one on their touchtone telephone. The next question is from the line of Abhishek Jain from Alf Accurate Advisors Private Limited. Please go ahead.
Hello. So, sir, as you mentioned that, the first quarter revenue from the Kubota, maybe was around INR 500 crore. Last year, it was around INR 2,000 crore. So can we expect that the revenue growth would be in line with the industry growth of around 5% to 6% in this year? And the second, that, what kind of the margin improvement which is- we can see over there?
No, so first of all, INR 500 crore, we said is for the first quarter, and INR 2,000 crore-
Yes.
What you mentioned is the annual number.
Yes, and that-
Similar level, so they are not different. But since the market in South and West, where Kubota is a stronger name, and they have got a better market share, was under pressure. So their numbers have also gone down, so which is the impact we are seeing on their market share, too, it's slightly moved down. But I think once the recovery starts happening in these markets, which we are looking at now, like in Mitul mentioned about Maharashtra picking up, so that is something which we obviously will give good, you know, boost to Kubota numbers, but they are obviously large players in the compact tractor segment in that state. The South is still slow, but they expect maybe the recovery should start happening.
It may not be to the extent, you know, what we've seen in the de-growth in last year, because almost 40%-50% de-growth happened in certain states. But recovery will start happening post-monsoon, where the monsoon has been good in most of these states now. So we expect I think those numbers should start picking up... If you look at the mix also from the JV perspective, it's not totally dependent on tractors. We are very largely also into AG solution business, agriculture transformer, which is a larger portfolio, and also selling the engine and the some of the exports of parts which is happening from there. So tractor industry volume, I think, comes only about 50%-55% for the JVs.
Balance comes from the other businesses which we are not really strong at, which is where we see the integration should help us, and this is also the reason I mentioned in the beginning, why we are dividing it so much because
So last year, the total revenue was around INR 2,000 crore. So can we expect that a 10% to 15% growth in that business and a better EBIT margin in this year?
See, obviously, they will also grow along with the industry growth, so they're not going to be different from the industry. The challenge I mentioned in the beginning was with the product portfolio, you know, which is not very strong with them. They've got very limited models to sell, so which is why they're not able to expand on a pan-India basis. I think the post-merger, post-integration, they'll be able to leverage our platforms, and we should be able to look at some very co-branding opportunities or combining the channel. We should help both the companies, you know, and the brands, you know, in terms of growth.
It means the second half will be much better than the first half because of the integration of the business?
Yeah, even otherwise, second half is better industry perspective also, because the first four months are more or less flat for the industry. So the growth which you're talking about essentially means the second half should give you double-digit growth, really negative double-digit for the whole year. So we are looking at good second half, you know, for this year.
Okay, sir. My last question on the component business, then what is your target for the next two years on a component business level?
The business is just starting, so as we mentioned last quarter too, I think the team is in place now, and they are looking at opportunities where they can do the sourcing from India and do the export. The potential is large, but it takes some time because most of the products need to be localized also for them before we start looking at, you know, large exports. So right now, what we do will be more like creating the opportunities, sourcing from some suppliers and then sending it to them. It'll not be really in-house manufactured products, which will happen only once your localization gets completed. So I think in the number of it will be, it'll be, I think, we're looking at maybe INR 500 odd crore, maybe next two years.
Okay, sir. Thanks, sir. That's all from my side.
Thank you. The next question is from the line of Krishna Agarwal, an individual investor. Please go ahead.
Hello.
Yes, you're audible.
Okay, sir. So thank you for the opportunity. My first question is on the tractor business. So, are we focusing on the small farm mechanization equipment, so let's say below 20 horsepower tractors, tiller or let's say rotavators, as there are other industry players who are focusing on this segment, as maybe there are subsidies that government are giving. What's your view on this, and how are company focusing on this segment?
Hi, Krishna.
Hi.
Yes, we operate in the sub 20 HP segment through a separate brand, which is called Steeltrac, and we're doing relatively well on that. The volumes are less, primarily because the segment size is not too big. As of now, there is no intent to go into the power tiller segment or rotary tiller segment.
Okay. Sir, my next question is, like, let's say if you have to cover the whole Indian market, how many dealers you would require? How many are currently in our dealership network? And for let's say if we talk about a specific region, how many dealers do you see that a region requires? Let's say in a 50 km, you require three dealers or one dealer, how this dealership count can go up?
So, Krishna, currently we have around 1,200 odd dealers at [Eicher] spread across the length and breadth of the country. Defining a dealer territory is based on the potential of that market in terms of the tractor industry and how the coverage can be done for that territory. So, in geographies which are smaller, like states like Haryana or Punjab, the dealers are to a certain extent at a distance of 30 km-40 km. But when you move towards states like MP or Maharashtra or the southern states and Rajasthan, so the distances are very huge. So overall, the dealers are. It's very difficult to quantify, but the dealers are based out of from a distance between 75 km-100 km and even 150 km.
That is one part. Also, there are in such locations where the geographies are very, very big, there are outlets and sub-dealers that are there. So, the dealers have their own outlets at the smaller or tier four, tier five locations. So that is how the coverage is done. So it is geography-specific and potential-specific .
Okay. Like I see right now is 1,200 dealers, so how much are we planning to grow in the dealership count?
... of coverage or not getting much there?
No. So, see, we in the northern part of the country, we have a pretty decent network. And our coverage in our stronger markets is to the tune of 80%+. So our focus for growth is in the west and in the southern part of the country. So yes, over the next two-three years, basically up to financial year 2028, the intent is to have a coverage of about 90% across both the brands.
How much dealers would be required to cover that?
It will be very difficult to quantify at this point of time, but I think it should be around between 1,700-1,800 dealers.
1,700 more dealers.
No, no, no. Total 17.
Okay. Total, sir.
Thank you. The next question is on the line of Mitul Shah from Dam Capital. Please go ahead.
Sir, thanks for opportunity again. So my question on your reply to previous question related to Kubota under pressure due to south geography. So south has been declining, Q1 was also 20% down. Even in the month of July, entire south is down 18%, the AP 19%, Telangana 25% decline. And so all those key markets are declining in a heavy double- digit on a lower base. And Kubota, of course, got impacted from a peak market share of 3%+, now it is 1.5%-1.6%. So what strategy we are doing for Kubota Tractor to become stronger in the other opportunity markets? And is there any possibility to launch any product for a mass category wherein we can gain market share?
Yeah, Mitul, that is the intent. So that's what I, in the mid-term business plan also talks about. The idea is once you do the integration, so there should be availability of product from our portfolio, which we can use in Kubota network. And right now, their issue is they are for limited models of tractors, and they're not able to compete fully with the competition. So that's why their presence is also now pan-India. Once they expand their product portfolio, they'll be able to leverage the network, both our network as well as their network. So that's what the company is working on right now, what product we can offer to them from our portfolio and how they can be branded, and maybe in a co-branding arrangement, you know, which we can sell through the channel.
That should definitely help the, you know, brand to gain more market share, you know, which is also one of the levers which we want to deploy.
But positioning will remain premium only?
Yes. So positioning will remain premium.
Okay. So then lastly, on the railway side, what one should take as a sustainable margin? This time it's coming 20% despite double-digit decline, of course, because of the product mix becoming favorable. But how do you see this product mix going forward next two- three years point of view and margin territory?
Yeah. Hi, good evening, Mitul. There are, other than product mix, there are few points which will have impact on the margin. One, I would say we will be having the positive impact is the localization of components, which as of now we are importing. That will be a favorable benefit. Second, I would like to mention that as we are introducing lot of new components, as well as getting into the components for Vande Bharat passenger coaches, there will be some impact because as we launch new products, there are low margins initially. So, I think, with both these points in mind, I believe margin should be in the range of ±200 basis points.
Okay. So can that go +200 basis also from this range, or maybe in the range of 17%-20% is the right?
Yes, that's what I mean. It can be both ways, plus minus, both ways, from current levels.
And sir, we have discontinued giving some details on the new product side, on railway side. If you can help me with the new product and this import content over last two- hree years, how it has come down or what could be the target? That, that will be the last question.
Okay. So, if I talk about the new product contribution, it is certainly higher than the earlier version, as we are introducing a lot of new products. What was the next point?
Import content.
Yeah, import content, obviously it is going down as we are regularly localizing our components, whatever we are importing, so it is going down.
Yeah. So any approximate number for this quarter, how much import is still we are there and what is the potential?
As of now, I don't have the numbers readily available. Maybe we can give later on.
Yeah. Okay, sir. Thanks, and all the best.
Thank you.
Thank you. That was the last question. I would now like to hand the conference over to the management for the closing comments.
Thank you, ladies and gentlemen, for being present on this call. For any feedback, or queries, feel free to write us to us at investor.relations@escortskubota.com. Thank you very much, and have a good evening.
On behalf of Phillip Capital (India) Private Limited, that concludes this conference call. Thank you for joining us, and you may now disconnect your lines.