Release Date: November 07, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Escorts Kubota Ltd (BOM:500495, Financial) reported a significant increase in net profit, up by 54% year-on-year, driven by a one-time impact from changes in long-term capital gain provisions.
- The company remains debt-free with substantial liquidity on its balance sheet, having repaid INR347 crores of debt from merging entities.
- The merger of Escorts Kubota India Private Limited and Kubota Agricultural Machinery India Private Limited with Escorts Kubota Ltd is expected to enhance synergies and diversify revenue streams.
- The company inaugurated a state-of-the-art export hub in Faridabad, dedicated to supplying components to the Kubota Group worldwide, indicating a strong focus on global expansion.
- Escorts Kubota Ltd anticipates mid-single-digit growth in the domestic tractor industry for FY25, supported by favorable agricultural conditions and government initiatives.
Negative Points
- Post-merger, the company's EBITDA margin experienced dilution due to the merged entities not being as profitable as Escorts Kubota Ltd was pre-merger.
- The construction equipment segment saw a decline in volumes, with revenue decreasing from INR440.2 crores to INR379.9 crores year-on-year.
- The export volume for tractors decreased, impacted by recessionary conditions in key markets.
- The company faces challenges in improving margins due to high material costs from imported products, which are expected to persist until localization efforts are completed.
- Escorts Kubota Ltd's railway equipment business is facing temporary supply holds on certain orders, and the company has decided to divest this segment to streamline operations.
Q & A Highlights
Q: Can you provide insights on the revenue and EBIT for the companies that got consolidated, and how should we think about margin recovery post-merger?
A: Bharat Madan, CFO, explained that the two JVs were breakeven operations with about INR2,000 crores in sales and nominal operating margins. The merger is expected to dilute margins by 1.5% to 2% in the short term. Margin improvement will come from localizing products and integrating synergies, with a target of 12%-13% margins in the medium term.
Q: What is the outlook for the tractor industry and how do you see the market evolving?
A: Neeraj Mehra, Chief Officer of Tractor Business Division, stated that the industry is expected to grow mid-single digits for FY25. The first half was flat, but the second half is anticipated to see double-digit growth due to favorable conditions like good rainfall and government support.
Q: Could you elaborate on the impact of commodity costs and the status of the greenfield plant for localization?
A: Bharat Madan noted that there was nominal inflation in Q2, mainly in rubber prices. The greenfield plant is crucial for localization and discussions with the UP government are positive. They expect land allocation within six months and commercial production by FY27-28.
Q: How did the festive period impact the tractor industry and your sales?
A: Bharat Madan confirmed that the festive period was very successful, with the highest ever sales in October due to the concentration of festivals. The growth was in double digits compared to the previous festive period.
Q: What are the strategic plans for the construction equipment business, and how do you see margins evolving?
A: Sanjeev Bajaj, Chief Executive of Construction Business, mentioned that the industry is expected to grow due to government infrastructure focus. They are working on new product platforms and leveraging the financing arm to improve margins, aiming for high single-digit to low double-digit margins.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
