Ladies and gentlemen, good day and welcome to the Q2FY2026 earnings conference call of Escorts Kubota Limited, hosted by Kotak Securities 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 touch-tone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Richey Bora from Kotak Securities Limited. Thank you, and over to you, Mr. Richey.
Thanks, Asha. Good evening. On behalf of Kotak Securities Limited, I welcome you all for Escorts Kubota Q2 and H1FY2026 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, Whole Time Director and Chief Financial Officer; Mr. Neeraj Mehra, Chief Officer, Tractor Business Division; Mr. Sanjeev Bajaj, Chief Officer, Construction Equipment Business Division; Mr. Sanjeev Garg, Head Finance and CPMO; 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 subject to risk as outlined in the annual report and investor releases of the company. Over to the management for their opening remarks. Thank you.
Thank you, Richey. Good evening, everyone, and thank you all for joining us today. Few highlights of the company's standalone financial performance for the quarter ended September 2025 are as follows. Operating revenue from continuing operation is INR 2,777.4 crore, up by 22.6% year-on-year. EBITDA is INR 363.2 crore, up by 56% year-on-year. EBITDA margin in Q2 is 13.1%, up by 280 basis points year-on-year. PBT from continuing operation is INR 431.1 crore, up by 55.2% year-on-year. Net profit PAT from continuing operation is INR 321.2 crore, up by 6.1% year-on-year. Please note that corresponding quarter last fiscal included a one-time tax impact of INR 91 crore on account of changes in long-term capital gain tax provision and the effect of brought forward losses for merged companies. Adjusted for this, normalized profit grew by 51.7% year-on-year. EPS stands at INR 29.19 as compared to INR 29.71 year-on-year.
On a consolidated basis, the company's financial performance for the quarter ended September 2025 is as follows. Revenue from continuing operation is INR 2,791.6 crore, up by 22.6% year-on-year. EBITDA is INR 359.7 crore, with a margin of 12.9%, up by 279 basis points year-on-year. Net profit from continuing operation is INR 318.1 crore, and adjusting the impact of INR 91 crore, normalized profit grew by 52.1% year-on-year. Moving on to the segmental business performance, on the tractor business in Q2FY2026, total industry domestic plus export was at 300,000 tractors, up by 28% as compared to the corresponding quarter last year. Our total tractor volume was at 33,877 tractors, up by 30.3% as against 25,995 tractors in the corresponding quarter previous year, resulting in a 20% basis market share gain. Total share at the end of Q2FY2026 stands at 11.28%.
On the domestic front, the tractor industry in Q2FY2026 was at 275,000 tractors, up by 30.7% against the corresponding quarter last year, driven by the preparedness of the festive season, continued government support, deduction in GST rate, and favorable agriculture conditions, including adequate water level reservoirs. On the domestic front, our sales stood at 32,329 tractors, up by 30.5% compared to 24,768 tractors in the corresponding quarter previous year. We have grown in line with the industry, and this growth was supported by new product launches and a range of customer focus initiatives. Looking ahead in FY2026, we expect the tractor industry to sustain its growth trajectory, delivering a low double-digit growth rate for the full fiscal year, led by healthy water level reservoir and separated robust crop yield, higher minimum support prices, and improved terms of trade.
On the export front, the tractor industry in Q2FY2026 had 25,600 tractors, up by 4.4% as compared to 24,500 tractors in the corresponding quarter. On export volume, our export volume was up by 1,548 tractors, up by 26.2% as against 1,227 tractors in the corresponding quarter. During the quarter, sales through Kubota Global Network account for approximately 52% of our total export. Non-tractor revenue comprising of agri-solution business, engine business, and service, and the spare part business in Q2FY2026 constitutes 17% of agri-machinery segment revenue, as against 18% in the corresponding and the sequential quarter. Agri-machinery product segment revenue came at INR 2,432.9 crore, up 29.1% as against INR 1,884.2 crore in the corresponding quarter. EBITDA margin for agri-machinery business was up by 368 basis points at 12.8% as against 9.1% in the corresponding quarter. Margin expansion was supported by easing material costs, better operating leverage, and cost control measures.
Coming on to the construction equipment business, in Q2FY2026, the served industry volume covering cranes, backhoe loader, mini-excavator, and compactor declined by approximately 4% as compared to the corresponding quarter last year. This was largely driven by the crane segment, which was down around 13% year-on-year. Our total volume at CE business was at 1,146 machines as compared to 1,394 machines in the corresponding quarter. Mini-excavator continued to gain traction with a market share increase by 151 basis points, now stands at 18.5%. Construction equipment segment revenue came at INR 338.1 crore as against INR 379.9 crore in the corresponding quarter. EBITDA margin for the quarter ended September 25 came at 3.8% as against 9.3% in the corresponding quarter, mainly down due to lower production as compared to last year, where inventory building happened to enable transition to the higher emission norms.
The construction equipment industry has been navigating a challenging environment currently, primarily due to the extended monsoon season and lower-than-expected mobilization of infrastructure projects on the ground. The industry is, however, expected to recover in the remaining part of this fiscal year as the government is committed to infra investment, and new projects are being started across the nation. Industry momentum is expected to pick up gradually, and we aim to prepare to take the opportunity. 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 touch-tone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets 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 Gunjan Prithyani from Bank of America. Please go ahead.
Yeah, hi. Thanks for taking my question. Just first question on the industry, if you can share a bit more color on what are we seeing on the ground in terms of the sentiment. There's clearly been a step up in the growth guidance, right, from mid-single digit to now low double digit. So a little bit more color on what we are seeing regionally, what we are seeing in terms of HPYs, and the sustainability of this going forward for the remainder of the year.
Yeah. Hi, Gunjan. Good evening. This is Neeraj Mehra at this side. So, as already mentioned by Prateek, yes. We see an upswing in the industry, and we're looking at this year to end at double-digit growth, a marginal growth in the double digits. Yes, post the GST reforms introduction, wherein 7% GST was reduced, we have seen a lot of buoyancy in the market. This buoyancy was there primarily on account of good rainfalls and other macroeconomic positive parameters. With the reduction in the tractor prices, this buoyancy has actually increased, which actually will help the industry grow further over the next six months. As regards to the regional flavor, the industry is actually growing substantially in the southern part of the country and the western part of the country primarily. It has shown some growth in the northern part of the country.
The northern part was kind of stagnant prior to September, but it has now started showing some positive movements. Overall, there is a growth across the country, but the major movement in Q2 came in from the southern part as well as the western part. On the HP side that you asked, what has actually happened? It's early days, per se, as yet, but post the introduction of these revised GST slab rates, we've seen a shift in the segment, wherein the customer is actually moving towards a slightly higher horsepower tractors. When I say higher horsepower tractors, the inclination is now for them to move into the 50 HP or 55 HP or 45 HP bracket. Because now, in the price of a 38, 40 HP tractor, he can actually purchase a higher HP tractor. With a slightly higher HP tractor, it's a kind of a multi-utility tractor, wherein he can utilize the tractor in all applications, agri and otherwise. I hope I've answered all aspects of your question, Gunjan.
Sure. This is very helpful. Just a follow-up on your market share. I mean, clearly, we've seen some stabilization in the recent months, but in the backdrop that South and West continue to sort of do well, it is going to be essentially your product actions that will help recover the market share. So any early thoughts on the product interventions that we've been making over the last six months, how has been the response to those new products, and how do we think about market share here on, given that it's still going to be more about South and West showing higher growth?
Okay. I'll take a couple of minutes to explain this. You see, we have three brands: Farmtrac, Powertrac, and Kubota. Farmtrac, we are doing very well. Post the introduction of the new series in January, the Pro Max series, the market share is growing. Irrespective of the region, the market share in Farmtrac is growing. In the last call, I had shared that we would be introducing certain new products, not an entire series, but certain new products in Kubota, and those were introduced in early August. It's early days yet, but the initial impact has been actually good. This I'm talking on the product interventions. On the Powertrac side, we were to introduce a series in the latter half of this quarter, but due to certain reasons, that's been shifted to the first half of quarter four.
Once that series comes into play, that series is primarily from the southern market perspective. We will see a definite positive turnaround on the Powertrac side. Yes, the industry growth in substantial industry growth in the western part and south is actually impacting us, but you would have seen that in the last quarter, we have, to a very large extent, been able to arrest this market share. Overall, the market share has not grown, but the continuous decline has been able—we have been able to arrest that in quarter two, and we are hopeful that as we go forward in Kubota and Farmtrac, we'll see a positive movement to continue. With the new range coming in in Powertrac, it'll take some time, but yes, we will see positives on the Powertrac front as well.
Okay, got it. This is really helpful. Just very quick on the P&L side, the treasury income has gone down in this quarter. I guess the railways money would have also trickled into any reason why the treasury income has gone down and what sort of yield we should expect going forward? That would be the last question.
Yeah, Gunjan, hi. Gunjan, treasury income is a blend of one, the surplus money. Second, how you do the accounting for the different products where you have invested in. Part of that portfolio, as you know, is logged into the open-ended fund, which is a mutual fund, which is subject to mark-to-market. If you see in quarter one, the overall yields had softened, leading to gain in the market. Mark-to-market move in a positive direction. However, in quarter two, there is some sort of hardening compared to quarter one. That is where you see the mark-to-market hit coming in. If we take out this mark-to-market move, then we are in the normal trajectory. Overall, on an H1 basis, if you see, there is an improvement. The impact of R&D money, it was there in Q1 as well for two months, starting from May.
Okay. Got it. Thank you so much.
Thank you.
Thank you very much. Participants who wish to ask a question may press star and one at this time. The next question is from the line of Vijay Pandey from Nuvama. Please go ahead.
Hi, sir. Thank you for taking my questions, sir. I wanted to inquire about the construction equipment industry. How are you seeing any potential recovery in the construction equipment industry, especially in the excavator business and the P&C business?
Yeah. Good evening, Mr. Pandey. Sanjeev, as I just said. We are looking at quarter two as a first sign of recovery because quarter one has been really down. Quarter two, industry has tapered down, the slowness has tapered down. We are expecting that by the middle of quarter three, we should start seeing the reversal of the trend. A couple of things which have happened during quarter two. One is, of course, the extended monsoon. Also, since industry has moved from BS4 to BS5, there is a price escalation for the customer, and that also, there was a resistance from the industry. The demand has not been so high. Projects have been mobilizing slow because of the monsoons, and demand has not been so high that it could negate the impact of pricing on the product. Overall, industry has gone through this tough phase in quarter two.
We believe that the recent announcements by government on the new projects which are being announced, especially in states like Andhra Pradesh, Bihar, Maharashtra, Gujarat, and various other projects which are non-mobilized are also starting to mobilize. We believe that demand will pick up, and that will be a big leveler for the time to come, especially in the later half of quarter three and later in quarter four. On a year-on-year basis, we believe that industry will be lower than last year, but on a single-digit drop from last year. Still, it is on a very high base compared to what it was a couple of years back. There is no sign of worry, but it is only because of the current situation, it looks like there will be a little bit of dip compared to last year's whole-year industry.
I'm sure that there was news coming out that construction equipment government will be bringing up some incentive program for the tea industry. Update on the same, and how do you see that would probably come in April? How do we see the benefit for the company and the industry?
See, those initial talks have happened. Government is inclined to do PLI schemes for domestic production. Those discussions are at a very early stage, and nothing has been concluded yet. Our construction equipment manufacturers association, ICMA, is in regular touch with the Ministry of Heavy Industries. As of now, there is nothing which we can really say conclusively. Definitely, government has the intent for domestic production, and they will continue to promote localization of the products as well as the components. Not as of today. That clarity will not be available as of today. I think next few quarters, we'll see what the outcome of those discussions will be.
Okay. Thank you.
Thank you very much. The next question is from the line of Mumuksh Mandlesha from Anand Rathi Institutional Equities. Please go ahead. Mr. Mumuksh, please go ahead.
Hello. Can you hear me? Sorry. I was on mute.
Yes, sir. We can hear you now.
Yeah. Thank you so much, sir, for the opportunity. I just want to understand, over the medium term, the GST has reduced the prices for the tractors. I just want to understand how the affordability plays a role, whether that can really improve the demand over the longer medium term. Also, because of the lower price point, will we see any upgradation happening to higher segments because the prices have come down? Also, sir, because the customer has seen the benefit of low prices, do you see any change in the discount or pricing trend for the company? Also, if you can add, because the steel prices have come down, do you see benefit or margin ahead?
Yeah. Thank you for your question. Yes, in the very short term, we see a positive impact of GST. While answering an earlier question, I had actually mentioned that yes, it's very early days yet, but we have seen a shift of the customers in moving towards a higher HP product. Higher HP in India is basically a 50 HP product. We have seen a shift moving towards that. Basically, in an INR 700,000 product, it's a straight INR 50,000 reduction. Also, for the smaller farmers or the marginal farmers, this again is an opportunity for him to buy a tractor. Because for the smaller or the marginal farmer, he is now getting an opportunity to purchase a tractor with a lesser amount of margin money that he has to bring in.
Also, from a medium-term perspective, looking at these two aspects, we see that GST will play a positive impact as we go forward. As regards to the discounts, the discounts are always there during the season time. Whenever it's peak festive time, all the manufacturers, including us, give certain shops certain discounts, and those are actually withdrawn once the season gets over. That will be the case this time around as well.
On the input cost, sir, anything on the input cost going ahead, sir?
Input cost, in the last quarter, obviously, there was a bit of inflation, which is why this slightly impacted the margin. In the coming quarter, in Q3, we are going to get the benefit of deflation in these prices. The quantum right now, we are not sure, but this is going to be a positive impact on the margin in Q3.
Got it, sir. Finally, sir, on the non-tractor revenue part, how do you see for the next 6 months- 12 months what kind of growth we can see for that segment?
This quarter also is a very good growth, actually. If you look at our agri solution business, it has grown more than the tractor business in the last quarter too. Only the other two businesses, Indian and spare parts, were more or less flattish in this six months. Going forward, obviously, if the tractor growth comes down from the current level, which has been very, very steep, then you will see the impact coming in. The non-tractor business will surely improve in the next six months. Overall, I think the spread will not be significantly different. We still have about 17%-18% coming from the non-tractor side. We expect it to move by 1% here and there, but we do not expect it to be a significant movement on this level. The tractor is also growing, which is, I think, also impacting this overall spread.
Got it, sir. Thank you so much for the opportunity.
Thank you very much. The next question is from the line of Rishi Vora from Kotak Securities Limited. Please go ahead.
Yeah. Hi. Hi. Thank you for the opportunity. My first question is just wanted to get a sense on what would be the inventory levels for us and for the industry after, let's say, the month of October.
Thank you, Rishi, for the question. Are you talking of inventory levels as on 1st of October?
As in end of October, basically, or whatever you could share.
As of end of October, we are looking at a little less than three, a little less than four weeks of inventory levels with our business.
Understood. Understood. My second question is on the export side. We have seen a strong growth in the first half. Any color you could give on what is driving the growth, which markets are doing well, and going forward, where do you see the tractor, the export market settling for us, and any guidance if you could share for second half FY2027? That would be helpful.
Overall, Rishi, we had given the guidance of 25%+ growth on the export number, given the lower base we had last year. So far, we had done better on export in the first six months. We expect going forward also, I think the numbers will continue to look better. The market, especially which we are growing, is the European market where the supply is happening. Major supply is to the European market only. We also opened Mexico now. We have tractors that will start going. Some parts have dispatched already happened in the first six months. The volume will start picking up going forward. I think in the midterm business plan, in the next few years, we have a lot of projects which are more export-focused projects from R&D side on which we are working. Our idea is to capture as many markets as we can.
That is one area of opportunity which we see will remain for us. That is the intent to utilize the quarter network also for export. We think that is one area which will continue to do well in the future too for us.
Understood. Just on the construction equipment business, I know we have seen a sharp decline in margins also on a sequential basis. Can you just reason out what has happened, at least in terms of profitability, and how should we think about it going forward?
See, so one of the reasons, actually, if you compare, is the issue on the production level, which has been low this quarter, because the emission norm changes have happened. We still do stabilize on the volume front. There was some inventory in the last quarter which got cleared up. I think going forward in the balance second half, we expect the numbers to start looking up now. Last year, obviously, it's not comparable because we did a lot of inventory build-up. That's why the margin also improved. There's the correction which has been happening in the first six months now, especially in this year. Going forward, I think once your numbers start moving up and the production volume is also improving now, we expect we should be back to high single-digit level of margin in the balance six months for seed business.
The last quarter also got impacted because of the inflationary impact, which again, with the softening happening now, that will be a positive impact we'll see in the next quarter.
Understood. Just last question, any update on the new plant? Where are we in terms of the approvals and everything? Any timeline you could share?
Some land parcel, which is, I think, about 5%-6%, which is still to be acquired by the government. They had some macro and the litigation with certain farmers, which now the government has won in their favor. They are in the process of completing their acquisition. We expect within a month, they have indicated they'll complete the acquisition and then start the formalities for transfer of land to EKL. Let's hope, I think, after within a month, if they complete this acquisition, then we need to do our due diligence for title, and then we'll start with this formality for the land acquisition. Hopefully, within this fiscal, we should be able to complete everything. The major parcel has already been acquired with them. I think it's only about 190 acres. They're seeing about 8 acres-10 acres, which is still to be acquired with them. Balance is all done.
Since the parcel is coming within the overall plot area, we don't want to really go ahead till the time they confirm and complete the acquisition.
Understood. And what will be the CapEx guidance for this year?
This year, we had done INR 350 crore-INR 400 crore out of normal capital, which will happen. So far, in the first six months, we had spent proportionately in line. We expect that number will happen.
Next year should be higher than this, right?
Normal CapEx is going to be in this range only. INR 300-INR 400 crore out of range will continue as a normal CapEx. Greenfield, obviously, will be additional as and when that happens. That will be all over this normal CapEx.
Understood. Thank you and all the best.
Thank you. Thank you.
Thank you very much. Participants who wish to ask a question may press star and one at this time. I repeat, participants who wish to ask a question may press star and one at this time. The next question is from the line of Vipul Agarwal from HSBC. Please go ahead.
Sir, thank you for taking my question. Sir, you just shared about the plan timeline. It looks like that next year, the plans will be ready by the end of next year. Maybe I just want to understand, in a shared, what is the revenue growth trajectory for the next five years? Like covering key milestones, what's coming from domestic, and how much will be coming from exports? Then parts supplies, maybe like a longer-term view, if you can give some idea about it. The key timeline, tentative timeline says which year we'll see the maximum growth. Yeah.
See, the major growth in exports will come when the greenfield is up and running. That will happen somewhere in 2028, 2029. Because if this year we complete the land acquisition, next year we're going to start the construction activity in those areas. The initial project estimate is that we'll be starting up in phase I additional capacity for the tractors manufacturing as well as for construction equipment manufacturing in that facility. Really, the current capacity we have at the existing location is around 170,000 tractors, which again also balance out and increase to 200,000. Looking at the demand scenario for the next three, four years, we don't expect there'll be any shortfall in the capacity at the existing location. It's only the timeline which will take lead time it will take to set up that phase I facility. I think by that time, the demand also picks up.
We can obviously adjust the timeline slightly by year here and there and can also prepone it if required. If not, then obviously we'll go as per the planned schedule.
Thank you. Thank you, sir. What kind of quantum are we expecting from this new capacity from exports right now? Maybe it has been like by a year or so, any changes in the earlier estimates? What kind of growth can we expect from the new plant from the export side?
Export, I think the major focus will be, I think, once we start exporting to the U.S. market. Right now, we are not exporting anything to the U.S. market. The plan was once the greenfield goes live, at that time, we'll start the activity for export to the U.S. market. There's also a plan to shift some of the global models to India, and India will be used as a sourcing for those products. Basically, made only in India and we'll be supplying from India to the world. That's a plan which Kubota has to come back, and they are working on it right now. Kubota is going to present their midterm business plan sometime, I think, in February or March next year. Once they make it public, then we'll also formalize it, and we'll also then announce it to the public at large.
Thank you. Thank you. That was helpful, sir.
Thank you very much. The next question is from the line of Himanshu Singh from Baroda BNP Paribas Mutual Fund. Please go ahead.
Hi, sir. Thank you for the opportunity. Sir, I just wanted to understand that our employee cost and other expenses on a YoY basis have kind of remained flat or declined. Just wanted to understand why and how do you see this trajectory going ahead?
Actually, it has gone up if you compare with last year and sequential quarter also, because our increment cycle is from 1 July. That is why in this quarter, July to September, we have seen the cost, which has gone up, whether by 8%-9% on the manpower side. As a percentage, it looks like it is the same, but overall, on the fixed cost basis, it has gone up. On the other expenses, I think most of the expenses which are variable in nature, only those have moved. Otherwise, the expenses have been kept under check, and we expect the trend should continue. Obviously, a lot will depend on how much we spend going forward on the marketing and promotion efforts, and that will again depend on the market situation. That is something which can really impact your other expenses. That really can go up.
The focus of the company now is on the sales growth and the acceleration on the top line. That really can impact in the short term on some of those expenses. Right now, I think for this year, we do not necessarily see a significant change.
Okay. Sir, can you give any break of how much would be the fixed expense in the other expense?
See, other than the selling expenses, which are slightly variable in nature, because you've got all your logistics, freight, forwarding, packing, warranty, loyalty, all those expenses are coming as part of other expenses. I would say it's still a 50-50 sort of split can be there. 50% can be taken as a fixed and balance will be variable in nature.
Okay. Okay. Thank you, sir. Thank you so much.
Thank you very much. The next question is from the line of Raghunandan N.L. from Nuvama Research. Please go ahead. Mr. Raghunandan, please go ahead.
Thank you, sir, for the opportunity. Congratulations on strong results and festive greetings. Just one question. On Kubota branded tractors, can you highlight efforts on improving the local sourcing? What would be the current share of local sourcing, and how do you see that ratio increasing next year? How would that change significantly once the new plant is up and running? Thank you, sir.
Sir, in the Kubota tractors, the one which we're making in India, the major part which gets imported is the engine only. And since the volume for Kubota products are not very high right now, I think we sell only about 10,000 tractors-12,000 tractors which are using Kubota engine in India. For that volume, localizing the engine is not a viable option for us, but the investment will be very heavy and will not pay back in the short term. I think, as we mentioned, the idea is to ultimately move to our own local engine, and we are looking at that possibility of development of products which will be sold under Kubota brand name using our platform, S-Car's platform. That product development is underway now.
Hopefully, in another two years' timeframe, we will be launching this complete range which will be with our own engine and which will get sold under either Kubota brand name or co-branded with our brand. That will improve the margin profile for the Kubota brand. Till that time, I think it will remain under pressure overall because most of the other items in Kubota brand are imported other than tractor. The only thing what we're doing now is the transplanter as a one product line which we are localizing in India. Right now, it's getting imported from China. That is getting localized now and will start manufacturing sometime next year maybe for that. This year, we've seen the demand for agri solution has been very strong, especially the harvester.
I think we have been a record sale in the last two months, and we've obviously stocked out as a zero inventory now with the company. Demand has been fairly strong going forward the way the integrations are. Obviously, as the volume go up, the attempt will be to localize the parts as much as we can so that we can improve on those margins.
Got it, sir. Thank you very much for that.
Thank you very much. Participants who wish to ask a question may press star and one at this time. The next question is from the line of Preeti Joshi from Financial Security. Please go ahead.
Hello. Thank you for giving me an opportunity. My first question is, are we planning to launch an EV tractor?
Sorry, Preeti, we can't hear you. Can you be louder?
Am I audible now?
Yeah, no issue.
Okay. Yeah. Thank you so much for giving me an opportunity. My first question is, are we planning to launch any EV tractor? And my second one is, what will be our new capacity after expansion of greenfield projects?
Preeti, we were already making electric tractor, but we have not launched it in the domestic market because the cost of those tractors is very high, especially the battery pack itself costs you equal to the cost of the diesel tractor. In India, we do not see it to be a really good market, especially looking at the affordability aspects of the farmers. We were exporting those tractors to European and U.S. market, but now we have stopped that because in the U.S., also the subsidies have been withdrawn from the electric vehicles. There again, you are seeing the demand is going down. In the short term, we do not see any major change in the strategy unless the cost of batteries really goes down significantly in India. The charging infrastructure in rural markets has to come up, which right now does not exist.
The side of power, you need to run those tractors and the implements. Going with the larger tractor, as of now, does not look like a viable option. We will have to wait and watch and see. Maybe there are alternate fuel technologies which companies are working on. Maybe those could be better options for India than electric tractors.
Thank you. What will be our updated capacity, expansion capacity after the expansion of greenfield projects?
You mentioned our existing capacity is about 170,000 tractors, which we can expand to 200,000 with some balancing at the existing location. The greenfield in phase I, we are looking at setting up 100,000 tractors capacity in the first phase. Then the second phase may follow with another similar capacity. I think overall, we're almost doubling the capacity from the current level what we have.
Okay. Thank you so much. Thank you very much.
Thank you very much. The next question is from the line of Priya Ranjan from HSBC AMC. Please go ahead.
Thank you, team. Just a couple of things. One is on the finance penetration. I mean, you have launched the captive finance. How is that panning out? That was one of the aspects of, say, market share gains. Where are we and how do we want to progress on that? Secondly, on the agri solution, I mean, the harvester, how much are we localized? What is the—because you see a lot of demand, etc., from the harvester side. That is a high-value item. What is the progress on the localization, etc., on that side? That is part one. I mean, let's first speak on that, then we'll move to the other ones.
First, on the captive finance company, I think we have started the operation from end of November last year. Right now, we are only operating in four or five states, and that too with a limited number of dealers. This year will be more like a settling down phase where we are settling down on the IT systems, which have been now developed and working. This year, it will be a small portfolio. Yes, we had done good in this season time also. I think last month also was a record number for them, even though it is a very small volume as of now. They are looking at expanding on a pan-India basis next year. Next year, we expect the company should be able to achieve break-even in profitability prior to the risk cost. In the year after, we expect the company should be in profit.
The penetration for captive is very low right now. Like I said, since we just started a few states, we are not even a pan-India player right now. The idea is the captive finance typically have a penetration of anywhere between 25%-35%. That is where most of the manufacturers have been working on. Our idea is also to get to the similar penetration level with our own captive finance company in the next three to four years' timeframe. Now, coming to your second question on harvesters. Right now, the harvesters are imported by us from Japan and Thailand. There are some parts, components, which we intend to make in India, which will be exported from India to Thailand and Japan, which will be used by those facilities in manufacturing, and they will supply back the finished product to us.
That is now one line we are starting in this month now in our existing facility, which is actually for the hydraulic lift and transmission axles, which will be done in India. Gradually, we will move to the high-value items. The idea is to localize it. We will be working on some options and exploring some contract manufacturers in India who can work with us on our design so that we can do the maximum localization. Like you mentioned, it is a high-value item. It almost costs INR 20,000-INR 25,000, and that is the selling price. It is 4x-5x over the tractor really sells at. The demand has been very strong. Obviously, it will make sense for us to do localization there.
Any plan? I mean, this plan. Localization can be done at some, any volume you are looking at at that point of time you want to localize? Or we have to wait till the new plan comes? I mean, the new land greenfield comes up, then we will probably look into it.
If we go with the third-party manufacturing, we do not need to wait for the greenfield. That is what we are planning to do. Right now, the localization, what we have done is in the existing facility. There, the space will be constant, so we will not be able to really do much over there. Our average volume for the harvester today in the tract type is about anywhere between 2,800-3,000, and this year maybe slightly higher. The numbers are not very high that way. Unlike if you compare with countries like China, where the harvester market is very strong, which is 100,000 units plus. In India, the tract type harvesters are still low. We have about 30 % -odd market share in India.
The idea is to move to the wheel type harvester, which is the largest segment of the harvester market in India, and also low cost as far as the farmers are concerned. Right now, we do not have that manufacturing facility in India. What Kubota has is not easy to localize because it will be quite expensive to make those products in India. We are looking at some alternate options in India where we can mix and match the know-how from Kubota and also use local facilities in India. Those discussions are still on. We are still exploring some options. Nothing is concrete and finalized as yet, but that is the plan going forward.
Sure. And just on the, I mean, say the manpower issue, etc., keeps cropping up even the agri, although we are a low-cost country, I mean, low-cost manufacturing country, but manpower in rural area, farming, etc., is still a concern. I think the Kubota also have an agri robot and agri, I think the drone system, etc., where you can at least do the pesticide, I mean, the spraying, etc. Any thoughts on those product lines where we can bring in and this can mechanize the farming and give better yield for the agriculture side in India? Any thoughts on that?
I think in India, still there's a farm labor which is way cheaper than what you see. In Japan, the issues are totally different, but they've got an aging population. Even if the people want to work in farms, they can't. That's why they're shifting to the autonomous machine. You'll see higher mechanization level in Japan than probably what India will see happening at least in the next decade or so. We don't think yes. Kubota has already developed a concept machine which is totally autonomous, which can work actually. It's also based on hydrogen fuel cell. Launching it in India, I think, is a far cry. I don't think that's a viable option. Like you mentioned to one of the questions earlier, even the electric tractor, even though we are the first one to develop in India, we never launched it in India because that productivity was an issue.
I think looking at the current wage structure for the farm labor, we don't think it's a viable option right now. Maybe in future, if really India sees the inflation in the farm wages, maybe that could be one thing which will explode. Right now, we don't think in the short or medium term, there's something going to happen.
Yeah. On the drone side, I mean, there are a lot of companies which are working. I think.
Yeah. Drone also has a different because, as I said, you're spraying it manually also is a health hazard for the operators. It makes sense to really go for it. You get better precision and better coverage with drones. In our case, we're already using sprayers now for the larger crops. We have a boom sprayer and for orchard sprayers. We've got a separate machine which is already available there in India. We are also selling some sprayers in our agri solution business. This is also done with the machine, so you don't need to have manual labor involved over there. For the larger field, it makes sense to use drones because in the small fields out there, you don't have a very large holding. Even the smaller machines still make sense, and they're much cheaper to operate. Drones still have an expensive proposition today.
The last one on the export side. I mean, the ex of U.S. Can we go to 25,000-30,000 in the next two, three years, depending on the product line, product planning, etc.?
About two, three years because the export to U.S. will start when the greenfield goes live, which will be somewhere in FY 2028, 2029. After that, we are looking at our export getting a major boost because that's when the export to U.S. will start.
Sure. Okay. Thank you all for this.
Thank you.
Thank you.
Thank you very much. As there are no further questions from the participants, I would now like to hand the conference over to Prateek Singhal for closing comments. Thank you.
Thank you, ladies and gentlemen, for being present on this call. For any feedback and query, feel free to write into us at investor.relation@escorts-kubota.com. Thank you very much, and have a good evening. Thank you.
Thank you very much. On behalf of Kotak Securities Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you.