Ladies and gentlemen, good day, and Welcome to the Q4 and FY 2026 Earnings Conference Call of Escorts Kubota Limited, hosted by PhillipCapital India. 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. Amit Hiranandani from PhillipCapital India. Thank you, over to you, Mr. Hiranandani.
Thank you. Good evening, everyone. On behalf of PhillipCapital India, I welcome you all to Escorts Kubota Q4 and FY 2026 earnings conference call. I 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 of Tractor Business Division. Mr. Sanjeev Bajaj, Chief Officer of Construction Equipment Business Division. Mr. Rajan Chugh, Chief Officer of Tractor Kubota Brand and Agri Solutions Business. Mr. Sanjeev Garg, Head of Finance and CPMO, and Mr. Prateek Singhal, Investor Relations & ESG. 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.
Now, I hand over to the management for their opening remarks. Thank you, and over to you, Prateek.
Thank you, Amit. Good evening, everyone, and thank you all for joining us today. During the quarter, India's macroeconomic environment remained broadly supportive, marked by moderate inflation, a softer interest rate outlook, and positive sentiment across both rural and urban markets. However, global geopolitical development, particularly the ongoing conflict in the West Asia, continued to cause challenges, resulting in higher input and logistics costs due to disruption in global shipping routes. Additionally, the depreciation of the Indian rupee against the U.S. Dollar further escalated cost pressure. In this operating environment, our focus remains firmly on delivering profitable growth and disciplined cost management. We remain confident in the underlying demand fundamentals of our core business in the near term and will continue to focus on driving operational efficiencies and prudent capital allocation to create long-term value for all our stakeholders.
We trust you had an opportunity to see the results and the earning presentation uploaded to the stock exchanges. Let us now walk you through our key financial state, highlights of the company's standalone financial performance for the quarter ended March 2026. Operating revenue from continuing operation at INR 2,950.7 crores, up by 21.4% year-on-year. EBITDA at INR 386 crores, up by 31.8% year-on-year. The EBITDA margin in Q4 at 13.1%, up by 103 basis points YOY. PBT from continuing operation before exceptional item at INR 433.8 crores, up by 21.1% year-on-year. Net profit PAT from continuing operations stood at INR 324.8 crores, up by 29.6% YOY.
Please note that Q4 of the previous year include an adverse impact of INR 27.1 crores on the account or impairment of the investment in an overseas subsidiary and a joint venture in India. Excluding this one-time impact, net profit grow by 20% YOY. EPS from continuing operations at INR 29.52 as compared to INR 22.79 YOY. Reported PAT including discontinued operation up by 9.2% YOY. Some highlights of our standalone financial performance for the year ended March 2026 are as follows. Highest ever operating revenue from continuing operations at INR 11,472.8 crores, up by 12.6% YOY. Highest ever tractor volume at 133,670 units, up by 15.7% YOY.
Construction equipment volume came at 5,794 units. Highest ever EBITDA at INR 1,513 crores, up by 28.5% YOY. Margin at 13.2%, up by 163 basis points YOY. PBT before exceptional item from continuing operation at INR 1,805.5 crores, highest ever, up by 32.1% YOY. Highest ever net profit after tax from continuing operation at INR 1,380.9 crores, up by 24.4% as against INR 1,110 crores in the previous fiscal. Earning per share from continuing operation at INR 125.52, up for the year by 24.3% as against INR 100.96 in the previous fiscal.
The board has recommended final dividend of 330% for the financial year 2026, equivalent to INR 33 per share. With the special dividend of INR 18 per share already paid, the total payout for FY 2026 will be INR 51 per share for a face value of INR 10 each, an increase of 82% compared to the previous year. Payout ratio excluding profit for exceptional item is at 26.3%. PAT including discontinued operation at INR 2,408.6 crore. On consolidated basis, company financial performance for the year ended March 2026 are as follows. Revenue from continuing operations at INR 11,540.3 crores, up 12.7% year-on-year.
EBITDA at INR 1,496.4 crores with a margin of 13%, up by 159 basis points YOY. Reported net profit from continuing operations at INR 1,366.4 crores, up 21.6% YOY. Net profit including discontinued operation and exceptional item at INR 2,394.1 crores YOY. Moving on to the segmental business performance. In FY 2026, the domestic tractor industry grow by 23.4% year-on-year, reaching an all-time high of 1,160,000 units compared to 940,000 units in FY 2025.
This robust industry growth was supported by healthy rural sentiment, supported by strong farm income, favorable and well-distributed monsoon, along with adequate water-level reservoir, strong crop production and higher MSPs, minimum support price, reduction in GST rate, accelerated pace of farm mechanization driven by government initiative and state-level subsidy program. Beyond near-term driver, long-term fundamental for the tractor industry remains strong. Low mechanization penetration relative to global benchmark, rising rural wages, labor shortage during peak agriculture season, and the increased need for time-efficient farming practice continue to underpin sustainable demand for tractor and farm machinery. Our domestic tractor volume at 126,994 units, highest ever, up by 14.9% YOY. As compared to the industry, our performance was moderated by regional demand variation.
Growth in north and the central region, our strong market was around 17%, whereas other region witnessed a growth closer to 30%. Additionally, the limited availability of certain key new models introduced during the year impacted our ability to fully capitalize on demand. During FY 2026, we placed a strong emphasis on executing excellence with a clear focus on improving retail conversion, expanding market reach, and enhance on-ground responsiveness. A key player of this effect was the deepening our financial partnership as well as launch of our captive finance business. We strengthen engagement with both national and regional financier, reducing approval turnaround time at the dealership level and introduce more customized financing solution aligned to specific customer profile. These initiatives support higher retail throughput and improve conversion across market.
We strengthen our dealer engagement and capability building through sharper retail monitoring, target training program for new product platform, focus incentive structure during peak demand period, and close collaboration on inventory and supply planning. These action enhance dealer confidence, improve product availability in key micro- market, enable us to manage regional demand variation more effectively. FY 2026 mark a significant year in our product journey with a comprehensive product portfolio refresh aligned to evolving customer need, crop-specific application, and regional requirement. Key launch during the year strengthen our presence across core premium and application-specific segment, receiving encouraging market response. We continue to invest in innovation platform renewal and fast go-to-market cycle with several new product introduction plan for FY 2027, reinforcing our commitment to sustained growth and market competitiveness. Looking ahead, we expect the current industry momentum to sustain in the near term.
However, geopolitical development, potential supply chain disruption, and rising input costs could moderate farmer affordability and sentiment in the short term. Additionally, evolving weather pattern, particularly emerging El Niño signal, will remain a key moderating variable influencing future demand trend. On export front, the tractor industry in FY 2026 was at 105,000 tractors, up by 7% as compared to 98,800 tractors in FY 2025. Our export volume stood at 6,676 tractors, up by 33.8% as against 4,991 tractors in the previous year. Sales through Kubota Global Channel account for approximately 60% of the total export.
Non-tractor revenue comprising agri solution business, engine business, and the service and spare part business in FY 2026 constitute 18% of agri machinery segment revenue as against 20% in the previous year. During the year, under agri solution, we introduced next gen KA6 and KA8 ride-on transplanter engineered in Japan, which deliver higher productivity, superior planning precision, and improve operation comfort. These models are well aligned with the acceleration shift towards farm mechanization driven by labor shortage and government support, particularly across Asia, and benefit from global trend showing strong adoption of mechanized transplanting for improved efficiencies and yield. Going forward, we remain focused on expanding our advanced agri mechanization portfolio, leveraging Japanese engineering to bring differentiated productivity enhanced solution to the market.
Agri machinery product segment revenue for the year ended FY 2026 at INR 9,709.6 crore, up by 15.8% as against INR 8,447.2 crore in the previous year. EBIT margin for the agri machinery business were up by 190 basis points at 12.6% as against 10.7% in the previous year, led by easing material costs, better operating leverage and cost control measures. Coming on to the Construction Equipment business. In FY 2026 was a year of transition for the construction by a combination of extended monsoon, a slower project mobilization during the first half, and a broader normalization in demand following an early surge.
As a result, serve industry volume across crane, backhoe loader, mini excavator and compactor was declined by around 7% YOY, mainly led by 13% decline in the construction, in the crane segment, 10% in the backhoe loader segment, while mini excavator and compactor grew by 38% and 5% respectively. Our construction equipment volume stood at 5,794 machines, down 10.6% year-on-year. Throughout the year, we remain firmly focused on long-term competitiveness, operational discipline, and protecting the strength of our franchise, while continuing to invest selectively in the capability critical for future growth. As the year progress, industry condition improved sequentially. The extent of the growth moderate throughout the first three quarter, ending the year with a growth assuming in, resuming into Q4 FY 2026.
During the quarter, the serve industry in Q4 grew by 4 odd percent, while our volume increased by around 9% YOY to 1,877 machines, allowing us to perform better as compared to industry and gain market share. This performance was supported by improved execution, better channel throughput, and gradual stabilization demand environment.
Construction equipment segment revenue for the quarter came at INR 556.5 crores, up by 22.6% YOY. EBITDA margin came at 12.7%, up by 386 basis points YOY. Led by leveraging operating leverage, improved cost discipline, and more favorable product mix. During the year, we continue our strength of our construction equipment focus, and we introduced Kubota K-U 26 mini excavator operating advanced precision and compact for performance for urban and the confined space projection. We also showcase Hydra 15 mining BLX 75 backhoe loader and also showcase the concept line of the Hydra 72 crane, representing a significant step in the high reach, lifting the new 72- foot boom and enhanced safety system. These product actions reform our long-term commitment to engineering in depth.
Looking ahead, we believe the fundamental drivers of the construction equipment industry remain intact. Continuous emphasis on the public infrastructure development, improving visibility on product awarding, and increased focus on urban infrastructure, mining and industrial activity prove a supportive medium-term demand backdrop. Evolving geopolitical developments are reinforcing the importance of the domestic infrastructure creation and supply chain resilience, which should structurally benefit the sector over time. We remain mindful that the geopolitical uncertainty may lead to a temporary supply chain disruption, volatility in the input cost and potential pressure on the pace of the government capital expenditure. We will continue to closely monitor these external risks while maintaining flexibility in operation and cost structure. We 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 their 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 questions. My first question is on the industry growth outlook. You did mention a couple of things that the momentum is sustaining, but the external risks are there. How are you internally planning for fiscal 2027 for the tractor industry growth? There are a bunch of new products that you've launched in the last couple of quarters. Can you also talk us through, you know, a bit more on those products and how they can just, you know, they can sort of help strengthen the market share improvement going forward?
Hi, Gunjan. Good evening. This is Neeraj this side. As already mentioned in the opening comments, we expect the industry to taper down over the next few months. The overall guidance for fiscal year 2027 is kind of a flattish industry, 2%-3% up, 2%-3% down. That is what currently we are looking at. Overall from the tractor business perspective, I think we are very confident. Over the last few months, there have been product launches across the three brands, and few other launches are planned over the next three, four months . Plus, we have utilized the last year in taking certain corrective actions and developing the channel. Both from the channel perspective as well as on the product side, we are well-placed. Certain product gaps have been covered. Financial year 2027 from a market share perspective and volume perspective looks pretty positive, irrespective of the outlook of the industry.
Okay. It's fair to assume that you've been, you know, we are confident of a positive growth irrespective of whether industry is a mild dip as well.
Absolutely. Absolutely. The products will actually help us tremendously. There were major product gaps. You would have, I had spoken in the last call also. We have introduced the paddy special tractors for the southern markets, which was a major gap. It's early days yet, but the bleed in south in terms of market share has started to drop. We, this year, we intend to see, or we will see a gradual increase in market share in these markets. Certain, it will be not prudent for me to speak on the new product launches, but certain other product gaps we intend to cover over the next three to four months. We are actually pretty confident from the new product perspective side.
Got it. Can you also you know, talk a bit about, you know, specifically on the Kubota brand scale-up that was, you know, that was anticipated in terms of expanding the geo reach, trying to, you know, reconfigure the product so that pricing is more suitable for Indian market. Where are we on that journey as far as the Kubota brand goes?
Rajan Chugh, can you answer?
Yes, sure. Thanks for the question. Well, on Kubota brand, we have both agri solutions and tractors. We kind of position ourselves there. In terms of tractors when we talked, you're right, we've had some gaps, and this year we are poised to launch multiple products to plug some of those gaps and quite upbeat about, you know, improving position in the market with the Kubota brand. As well as, like Prateek mentioned earlier, on agri solutions, we last two years we've been launching newer products, newer technologies. This year as well we are planning to expand our portfolio in harvesting segment as well as planting segment. Yeah. Both in coming quarter and, little later part of the year, we have quite a robust pipeline of products getting introduced, this year.
Got it. My last question is on the margin performance. It clearly seems a bit underwhelming when I look at the quarter-on-quarter EBIT margin decline. Can you give us some color on how, you know, what really happened in this quarter and how should we think directionally? I'm assuming a lot of cost pressure from steel hasn't showed up in this quarter, right? What explains the performance in this quarter and, you know, a bit more color on the outlook for next year.
Prithyani, there was a bit of obviously some pressure had come on the inflation side, but it is not much in this quarter, as you mentioned. I think most of it will happen in the coming quarter. It is mostly issue on the mix side with the new product sale actually had gone up and there is also some increase in the non-product sales. No, non-tractors revenue, you know, which slightly was up. There the margins are lower compared to the tractor business. That is why year-on-year we see there is a marginal dip, but it is not significant. I think it is more or less like 1% dip if you compare year-on-year on the EBIT margin for agri business. Compared to the Q3, obviously Q3 was the operating leverage. The volume was way higher, and which is normally the case.
Going forward, we do see pressure will be there on the commodity side because we are still getting lot of requests from suppliers for the passing on of input cost increases. I know procurement team is still in discussion to finalize those numbers, I'm sure it's going to be significant in the coming two quarters. We've got to wait and watch and see, you know, how this geopolitical situation really emerges and how much risk we are able to pass on to the market.
On a full year basis, can we keep it flattish or do you see that there is probably some hit in, on a full year basis?
Depends. There are certain costs which are going to be permanent, especially they are costs related to energy and manpower. As you know, in Haryana, the minimum wages have been increased by almost 35% for contract labors. In UP also where our larger vendor base is situated, there also the costs have gone up by almost 20%-23%. This is something which obviously will be a permanent increase, this is also going to impact our margin a bit. Although on the commodity side we expect even if there's a temporary increase, it will come back, hopefully once the situation improves. The process costs which are getting passed on, especially on the energy side or on the manpower side, these probably will not come back.
As you know, we had taken marginal price increase in the last month and in this month, in April, to tackle those, you know, some of those cost increases. Again, we'll have to really see. Our effort will be to maintain the margin on a full year basis, but obviously it's too early to talk about that unless we know how the geopolitical situation really emerges.
Got it. Thank you so much. I will join back the queue.
Thank you. Next question is from the line of Raghu Nandan from Nuvama Research. Please go ahead.
Good evening team, thank you for the detailed opening remarks. Firstly to Neeraj, sir. Sir, can you talk about the region-wise performance, which regions should be relative outperformers or underperformers in FY 2027, and how will that be beneficial for Escorts?
Yeah. Hi, Raghu. Thank you for the question. A bit on first on financial year 2026. If you see the industry growth in the northern and the central part of the country, in the last fiscal, as also mentioned by Prateek, was close to 16%, 17%, which are our stronger areas. In the western part and in the southern part of the country, otherwise the overall growth was about 30%. West was to a very large extent driven by subsidies.
We feel that financial year 2027 should be, from a industry perspective, to a certain extent good from EKL's perspective because the growth in the last fiscal has not been in line with the overall growth of the industry in the northern and the central part of the country. To answer specifically to your question, I think, overall, as we have mentioned, a flattish outlook, or a marginal 2%-3% growth, for financial year 2027. The major hit will actually come in terms of industry in the western part and the southern part of the country. North should be more or less stable, or no growth kind of a scenario. That is on the regional outlook.
Noted, sir. The new products plus the favorable regional outlook both should be positive for Escorts in growing volume and gaining market share for FY 2027.
Yeah. We are confident on that totally.
Thank you, sir. My second question is to Rajan, sir. Sir, the non-tractor share in agri segment is a meaningful part. Can you indicate what kind of a growth you expect in farm implements in FY 2027 or the next two, three years due to rising mechanization? Also for the Kubota under the Kubota brand, tractors were expected with Escorts engines. When is this expected to happen?
Thanks, Raghu. This is Rajan here. Your first question on the agri mechanization, farm machinery other than tractors. As we've also talked about, in past three years, we've been growing a pretty robust 35%+ kind of a CAGR. We continue to look at this segment, you know, at least in 20%+ kind of a next three years outlook. Largely because it's the kind of product pipeline we have and the channel we are expanding. Also the newer products which we'll be introducing every year. We're kind of, you know, consolidating our position in harvesting segment, which is second to tractors when it comes to mechanization, both in terms of volume and size of the market. Coming to tractors.
I won't talk about specific timeline on localization, but we continue to improve and introduce newer products. This year we've almost planned about eight or nine newer products with three or four new segments we'll be covering when it comes to tractors. Similarly, next year also, we have a decent pipeline of products coming in to fill the gap and improve our position in tractors. I mean, we are kind of increasing or improving our localization of components and products in India in both segments, machinery and tractors. Thank you.
Thank you, Rajan, sir. Lastly to Bharat, sir. Sir, you indicated about the commodity inflation. Approximately how much is the commodity impact expected in the near term as a percentage of sales? How much price hike was taken in April? Would it be around INR 10,000 per unit? How much more is required?
See, commodity right now, like you mentioned, is still not finalized. There's still negotiation happening by the procurement team with all the suppliers. But the indication we are getting is varying because depends on commodity to commodity. Like tire suppliers are asking for 15%, 20% hike. Steel is already gone up by 7%, 8%. That we've seen in the Construction Equipment space. The base metal, both copper, aluminum, we're seeing the similar double- digit pressure. And then there are process costs. We don't know where it will really end, but I think our feeling is it will be somewhere maybe 5%, 6% sort of costing fees can happen.
Question is how much we'll pass it on now or how it will be passed on in next quarter to the supplier and how much of this can be further passed on to the market to customers. Like you mentioned, we had taken about 1.5% sort of price increase in April across various brands, on tractor side and also on construction equipment side. But this is not really sufficient to take care of any of these pricing increases. We are still talking to many other players, you know, and also suppliers to see how much. Because there are many costs which are one time impact. These are not a recurring sort of cost.
There are costs in terms of like someone not getting LPG supplies, so they're paying higher prices to get those continued supplies so that the supply chain is not disrupted. These are one-off costs which probably can be negotiated and amortized over the longer period of time rather than taking in from one quarter. That's like something is too early to talk about. We'll obviously try to minimize the impact, and it will not be different from what maybe the others in the auto industry will really pass on.
Noted, sir. Just a clarification. 5%, 6% could be as a percentage of revenue or the increase in RM basket?
No, sir, revenue. RM is much higher. With all metals, base metal everywhere is double-digit sort of inflation.
Lastly, CapEx and investments expected for FY 2027, sir?
CapEx, normal CapEx is in the range of INR 350 crore-INR 400 crore only. Last year also, I think we spent about INR 311 crore on total CapEx in terms of cash flow.
[crosstalk] Greenfield plan?
The Greenfield is going to be large investment, which we expect should be I think this year will be only about roughly INR 500 crores, somewhere around that. This will include the land development boundary sector. The land initial payment we already made, and the balance payment will happen probably within this quarter.
Investment into captive finance division, how much has it been so far, and how much more is required? Sorry, that's the last question.
So far we had invested INR 200 crores in the capital, and additional approval was taken for additional INR 500 crores. Obviously we are injecting as and when they need it. By the year, this year end, we expect maybe additional INR 300 crores will go, and balance INR 200 crore will go next year. This also depends on the portfolio and how much AUM they are able to maintain and grow.
Many thanks, sir. I'll fall back to the queue.
Thank you. Before we take the next question, a reminder to all the participants. If you wish to ask a question, please press star and one. Next question is from the line of Pramod Amthe from InCred Capital. Please go ahead.
Yeah, hi. Thanks for taking my question. The first one is with regard to the tractor industry outlook. When you are talking about a flattish or 2-3%, what is the type of quarterly volatility you are looking at, and what's the exit type of, considering it's a high base in the second half?
Hi, Neeraj again this side. See, last year, the overall growth was 23%, but Q1 , the growth was very subdued. It was about 9%. I think we will see a growth in this year sorry, in this quarter, then this growth will to a certain extent, taper down. H2 would be a substantial negative growth because the base is very, very high. Also, the impact of the monsoons wherein the forecast has been a subnormal monsoon this year. The impact will also come in H2. H2 would probably be a substantial degrowth basis these reasons. H1 should be at par kind of a scenario.
In that context, the FY 2028, again, it will be a challenging to turn around from a negative growth second half into a positive territory or you feel it'll all again depend on the monsoons?
See, Pramod, the industry, tractor industry has been kind of cyclical. If you look at the industry over the last eight years, leaving aside the last year, it has been alternated in a growth and a degrowth. One year it's been, it grows, the next year it degrows, then it grows, it degrows. Over the last eight years or nine years, that has been the cycle. Yes, the growth has been higher than the degrowth of the previous year. We feel it's very early to comment on financial year 2028.
But financial year 2027, even after our guidance of a flattish kind of an industry would be, still be a very, very high base of INR 1,160,000 , INR 1,150,000 , INR 1,175,000 . That is the scenario. It's very early to comment on financial year 2028, but it's nothing new. It's a cyclical industry, and that has been the norm over the last 8 years, except the last year, which has been an exception.
Yes. Helpful. Second, with regard to, considering that there are series of new products which are coming in and you are replacing the old one, wanted to get some thoughts in terms of how is your R&D spend has changed post Kubota coming on board, and what is the extent of help you are getting from the global partner or it's all developed still from the Indian context?
The major CapEx which are increasing actually is on the product side only. I think out of INR 300 crores, INR 350 crores, majority of this will go on the product development side. Even last year, I think almost INR 200 crores would have been spent on the product development and next year also will be INR 200 crores, INR 250 crores will continue to be spent on this. As I think we mentioned in the pipeline, our product portfolio is quite strong, and new launches will happen across all brand, across both the businesses. Actually these spends will continue.
Any handling by Kubota here or it's predominantly done from the Indian R&D itself?
There are certain projects which are totally done locally, especially in our own platform, our own brand. There are certain products which are running jointly with Kubota R&D team, and they are also helping us like this paddy special tractor, their involvement was also there because Kubota is specialist in the paddy tractors. Their team also is involved. Any product development happening on the Kubota brand, obviously their team is equally involved. In agri solution they are equally involved. It's a mixed development. Depending on which product, which platform we are working on, and then accordingly both the teams contribute.
Sure. Thanks a lot.
Thank you. Next question is from the line of Ayush Anand, an individual investor. Please go ahead.
Good evening, sir. My question is, what percentage of global Kubota sourcing will shift to India by FY 2030?
We don't know how much of their global sourcing will shift, but obviously our plan is good. I think by FY 2030. Last year was not very high. I think there's some new production which was supposed to start, did not start because some quality issues. That was delayed. Now I think we started exporting in the last quarter there. If anywhere between maybe INR 500 crores-INR 1,000 crore sort of numbers should happen by FY 2030 on component export from India.
Okay, sir. Where will ROIC improvement come from? Will it from margins or capital allocation or asset terms?
Sorry, what will come from?
ROIC improvement.
ROIC. Okay. No, it will be essentially the operating leverage which will be at play and also the cost effort because the company is working on cost realization equally, both on the productivity improvement, efficiency improvement on the shop floor. We introduced Kubota Production System on the line, and that is going to help in further improving productivity and improve quality. I think all these factors will lead to gradual improvement in the cost structure and we are also looking at rationalizing multiple product platforms to reduce our supply chain complexity.
I think all these parameters will help us in reducing costs and improving our margins and reducing capital too, both on inventory side as well as on the supplier too.
Okay, sir. That's all from my side.
Thank you. Ladies and gentlemen, anyone who wishes to ask a question, please press star and one. Next question is from the line of Viren Samir Deshpande from Alpha Peak Investments. Please go ahead.
Hello.
You're audible, sir. Please proceed.
Hi. Yes. Thank you for the opportunity. I would like to know, the results have been quite good for this year and, base created for the current year is quite high. Next year it is definitely likely to be a flattish year for the tractors. Construction equipment and earlier we had the railway. Now, the railways we have divested of the business and, we have the money sitting in the balance sheet now. The construction equipment last year was underperformer because of the various reasons. What is the outlook for the construction equipment going forward? Because last year our capacity utilization has been only 47% and, it had affected. The mini excavators, which you were quite bullish last time also, whether these cranes and mini excavators are likely to do well in the current year?
Yeah. Hi, Samir. Sanjeev Bajaj this side. Hi. Audible?
Yeah.
Two parts of your question. First is that, last year has been little subdued. Yes, I mean, we've seen some difficult times in the last year as far as the overall industry is concerned. Both, overall construction equipment industry as well as our sub-industry has gone through some tough time last year. Having said so, I mean, it is compared to a base which was much higher, you know, last to last year, the base was also very high.
Now, what is our anticipation of the industry is that, you know, this year, had there not been these West Asia crisis challenges and supply chain issues, we would have seen some, you know, growing demand in this quarter itself. The signs of that could be seen in the last quarter of last financial year. While the first three quarters were very, very low, but in the last quarter, actually industry picked up, came up to the last year's level. We could have continued with that growth, but in the short run we see there will be little bit of challenge because of these uncertainties of the macro factors which are, you know, playing right now.
Over a longer period, in two to three years' time, we see there is, you know, turnaround just around the corner because we believe that the CapEx which the government is every year committing, that CapEx will as it gets invested, it will bring lot of growth for the overall industry. The focus on infrastructure and the focus on speeding up the projects, the focus on the quality of the projects and thereby, you know, moving to higher technologies of production, higher technologies of construction, that focus is clearly visible. We believe that, you know, in the product categories which we, where we are, those are direct beneficiaries of all the, you know, investments on the infrastructure which is going to happen. We believe that till the next Lok Sabha elections, there is a huge pipeline of infrastructure development which the government is planning to do.
It is only, you know, at the right time, those funds have to flow to the market that, you know, the results will be visible in the industry numbers also. In the short run, we see there will be some challenge in terms of the raw material cost, which of course every manufacturer will try to pass it on to the customer. Therefore it might dampen the demand a little bit. If this gets sorted out in next 1.5 q uarter, I think we are looking at a phase of a big turnaround after that. Yeah.
I think half two is likely to be better.
It is likely to be better. Of course, I mean, the uncertainty of macro factors is not purely within the industry control. Looking at the current situation, if things settle down in next one or two months, I think post-monsoon we should see a big turnaround in the industry. That is the, you know, the confidence of each, every manufacturer which we talk to. Second part of your question was on cranes and mini excavators. In both the segments, our market share growth is visible. Even in the last year where it was, the industry was going down, we have gained 2.7% market share in cranes.
Also we've maintained our number one position in the country in mini excavators. From these two, although the industry size for mini excavator is still very small, we are looking at year 2030, 2031, where the industry size is expected to go to three times of what it is today. We are definitely going to get benefited in the medium to longer term by maintaining a good portfolio of products as well as maintaining a good position in the market.
Is there any export potential for these mini excavators and maybe cranes, et cetera? Because when domestic market is weak, maybe because of the Kubota channels, et cetera, are we planning to do anything on that export front?
Yeah. Not for mini excavators, per se, because today, whatever mini excavators we are selling, it is currently fully imported from Japan. Kubota channel, other countries Kubota channel also buys from Japan or Thailand. Unless until we start manufacturing in India, which will probably happen once the, once we have the new plant ready, then we that could be planned. Then probably there will be a case of exporting from India, at a better price, you know, controls. That is, that is about the excavators.
On cranes, there are few countries who use this type of cranes, largely Africa and Southeast Asia and SAARC countries. Those are the countries that we are definitely exporting, and we are continuously increasing our channel distribution presence there. We, we are making a good progress in that. Our export used to be about 3.5% of total revenue. It is moving upward of 5%-6% now. We expect this to grow to 10% by 2030. This will continue to be our focus area.
Okay. My next question is to Mr. Madan. It is regarding the cash on the balance sheet, which we are currently having, including the current investments of INR 6,000 odd crores. The last year we had some INR 3,500 crores. This year it seems the balance sheet we have about INR 7,000 crores of cash. As the CapEx is not likely to be very high, of about just INR 400 odd crores, and the capacity utilizations currently are quite comfortable, so it doesn't warrant any big expansion at this point. What are the plans to utilize this big amount which we are available, having available with us?
No. If you've been following our company, we have made the announcement for investing in the greenfield facility. Which we just mentioned, we just acquired, in the process of acquiring land and initial payment has been made. The investment we have earmarked for Phase 1 in that project itself is more than INR 2,000 crore. This is only Phase 1. The expansion will happen. Overall plan, I think over next seven to 10 years will be to spend more than INR 5,000 crore on this greenfield project. This will include both tractor as well as construction equipment and maybe going forward even the agri solution will also get added to this. We have plans to do this. In addition, there's also going to be the investment in the captive finance company. Initially we mentioned.
INR 700 crores of capital has been earmarked for a finance company, and we invested so far only INR 200 crores. The balance INR 500 crores will get invested over the next 12 months or so. Obviously there are plans to do that, and there'll be certain cash which will remain on the balance sheet for future growth and expansion requirements too. We don't think there's a liquidity which is more than required. I think we think there are enough requirements from the business growth perspective which will warrant this liquidity to remain on the balance sheet.
Over a period of two, three years it will be utilized fully. Hello?
It may or may not be fully utilized, but there are certain surplus which will obviously keep with the company for future growth. It will never be zero.
Okay. That's good. We are having net cash to go instead of going for the debt, because that puts pressure. Okay. Thank you, and all the best.
Thank you.
Thank you. Ladies and gentlemen, please note in order to ensure that the management is able to address questions from all the participants in the conference, kindly limit your questions to two per participant. Should you have a follow-up question, please rejoin the queue. The next question is from the line of Harsh Marcellus. Please go ahead.
Hi. My question is with respect to the Capital NBFC. You alluded that we'll be funding INR 500 crores of capital into the NBFC, but any aspiration with respect to how much the loan size is likely to be by year-end?
Sorry, how much? Loan?
The loan book size is expected to be, the leverage that you are ramping it up to.
As I mentioned, we'll keep putting the capital based on the loans book size only. We're not going to give the capital in advance to them. As and when their portfolio increases, we'll keep on investing. Our approval from the board is to invest up to INR 700 crore of capital, so far we've done INR 200 crore investment into that entity. The portfolio is already more than INR 100 crore today, as of end of March. Obviously the portfolio is growing as they're expanding the reach in various states and more dealers are getting onboarded, so the business will increase. As and when the requirement comes in, we'll keep putting the capital up to that level. Obviously beyond that, then we'll look at the leverage opportunities for that.
Yeah. We'll be funding it full INR 700 crores and only then look after, go after leverage. Is it?
Yeah. Initially up to INR 700 crores of capital will be funded by us. INR 200 crores has already been invested. INR 500 crores more will go in next 12 -1 5 months.
Okay, got it. With respect to this model, what is the ROE aspirations that we have with respect to the Capital NBFC?
See, the long term, if you look at most of the captive finance companies, the long-term ROA will be somewhere between 1.5%- 2%. The basic purpose of captive finance is to help the main business in growing market share and increasing volume. That is the primary objective. It's not that we will be going non-captive and focus more on the profitability. At the same time, we don't want to be in a losing proposition so business has to be sustainable. It should be reasonable return and at the same time also help the main business to grow.
Okay. Makes sense. Thank you.
Thank you. Next question is from the line of Sudhir Kedia from ValueWise. Please go ahead.
Good evening, sir, and thanks for the opportunity. Sir, you mentioned about the industry growth being flattish for the full year and significantly negative for the second half of the year. Sir, my request is if you can also elaborate in terms of one reason you said about the high base, but if you can also elaborate on your view on the monsoon and El Niño effect and the subsequent effect on the rural purchasing power because of that.
Yeah. Hi, Mr. Kedia. I had mentioned this earlier. Yeah, Sudhir, hi. I had mentioned this earlier. Overall, the primary reason would be the high base. Apart from that, the forecast of monsoons and the impact of El Niño. El Niño impact to a certain extent currently, what we see is that it will impact to a certain extent. The probability is about 70%, 65%-70%. Plus, if you see the reservoir levels currently, the rains that had to happen in Q4 of the last physical, the January, February, March period, the rains were also much lower than what they normally are. The reservoir levels are lesser or the levels are lower than last year or for the last 10-year average as well. The rainfall level Plus, we are looking at increase in the commodity prices as has been mentioned throughout the call today.
One of the reasons for growth of the industry last year was the GST impact which came in September and after which the industry grew exponentially. If the commodity prices come into the increase comes into effect in this year, of course, the purchasing power or the benefit of the GST is likely to go away. All these things, the below normal rainfall, the El Niño impact, the high base, the commodity price increase, all these are actually going to have a kind of a negative impact in H2. That is why I had mentioned that H1 would be a gain with respect to last year, but H2 would be a drop with respect to last year industry.
Got it, sir. My only request was, while the answer is quite comprehensive, what I was trying to understand is that there are two effects which are playing out simultaneously here, is one, a very high base effect in the second half, and two, an incremental negative impact due to two reasons. One is the higher price of the material due to higher commodity prices and also due to bad monsoon and low reservoir level, as you are saying. Is it possible for by any reason to understand which effect will be playing by what percentage? Let's say if the base effect would have been normalized here, would you still be negative in that sense because of the monsoon effect?
It is too early to talk about this, Sudhir, right now, because we can't say with precision how much will be the impact of each variable. There are too many variables right now into play. No one knows what will happen. We are only assuming a flat industry, which we think will be very good because your industry was at its peak last year. If you are able to maintain that even despite of so many, so much of headwinds, I think it will be a great achievement for the industry to really work on that. Luckily for this year, emission norms have been deferred. That was one negative impact which was at play, which will not happen. It will only come into play for horsepower tractor, which is less than 25 horsepower from 1st of October.
There also industry has about nine months time to continue to sell the old inventory. Really this year will not have really much impact on that. Really how the monsoon distribution happens, which pockets get impacted, what sort of geopolitical situation emerges, what sort of cost pressure will come in future, very difficult to predict at this point in time. I think our initial assumption is if it's a flattish industry, which is what we are assuming, or it may be ± 2%-3% here and there, I think it will be a good scenario to play out in this year.
If you have to call out, H1 of fiscal 2028, would you come, guide, moderate, for H1 of fiscal 2028 as well because of the effects of, H2?
It's too early to talk about FY 2028. Long-term industry growth projections have been CAGR of 6%, 7%, 8%. We think in the long-term that will continue. The industry has done that sort of, you know, performance in the last few years and last few decades. Long-term, obviously the growth momentum will continue because your emission norm changes will only happen right now from first April 2028 onward. Obviously 2028 should be a reasonably good year. Again, it will depend how the monsoon happens, what sort of water reservoir levels are there in the beginning of FY 2028 and then in the second half of that year.
Sure. Sir, one more point. How much financing and the interest rate plays a part in the buying decisions of the farmers?
70% sale for us is on financing only. Without financing, the sale will not happen. Retail is dependent to a large extent on this financing availability.
Sure. Okay, helpful. Thank you.
Thank you. As there are no further questions from the participants, I now hand the conference over to Mr. Prateek Singhal for closing comments. Over to you, sir.
Thank you, ladies and gentlemen, for being present on this call. For any feedback or queries, feel free to write in to us at investor.relation@escortskubota.com. Thank you very much and have a good evening. Thank you.
Thank you very much. On behalf of PhillipCapital India, that concludes this conference. Thank you all for joining us today, and you may now disconnect your lines.