ESCORTS - Escorts Kubota Limited Share Price

Management Outlook and Major Points:

1. Agri Machinery (Tractors & Implements):

• Industry Growth: Expect domestic tractor industry growth of ~6-7% for FY25. Q3 saw 12.7% YoY industry growth, driven by strong demand in non-core markets (South, Chhattisgarh, Odisha).
• Market Share: Focus on improving share via new launches (e.g., Farmtrac's Promaxx series) and expanding dealer network (1,540+ dealers). Retail performance is stronger than wholesale.
• Exports: Targeting 20-25% YoY growth in FY26 with Kubota's European network. Export volumes to Kubota started in Q3 (27% of exports).
• Margins: Q3 EBIT margin dipped to 10.4% (vs. 12.1% YoY) due to higher discounts, commodity inflation, and growth in lower-margin traded items (e.g., harvesters). Margins to improve gradually with localization and cost optimization.

2. Construction Equipment (CE):

• Transition to BS-V: Short-term volume impact due to price hikes (5-10% cost escalation). Launched Stage V-compliant products (e.g., Hydra crane, BLX 75 backhoe).
• Outlook: Optimistic on mid-to-long term growth from infrastructure projects (roads, railways, irrigation). Q3 EBIT margin improved to 11% (vs. 8.1% YoY) due to mix and cost control.

3. Non-Tractor Agri Business:

• Revenue contribution rose to 21% (vs. 19% YoY), driven by harvesters (+30% YoY), engines, and spare parts. Focus on scaling implements (transplanters, etc.) and localization to boost margins.

4. Railway Equipment (Discontinued):

• Order book at Rs.890+ crore (excluding Rs.380 crore BMBS orders on hold). Q3 revenue declined 2.2% YoY to Rs.200.4 crore.

5. Financial & Strategic Initiatives:

• Land Sale: Sold 33,000+ sq. yd. land for Rs.110 crore; relocating spare parts division.
• New Plant: Greenfield facility in UP delayed due to land acquisition; expected post-government approvals.
• Interim Dividend: Declared Rs.10/share.

Overall: Management remains focused on market share recovery in tractors, scaling exports, and margin improvement via cost efficiency and product mix. Near-term challenges include CE price hikes and Agri margin headwinds, but long-term growth drivers (infrastructure, rural demand) remain intact.

Question 1:
"I just wanted to get your thoughts on the market share. Because if I look at the industry as a whole, it seems to be doing quite well. But I think our growth has been lagging the industry across regions. So, if you can just share some thoughts on what is it that is dragging the performance? And how should we think about market share improving from here on?"

Answer:
Market share lagged due to unfavorable geographic industry growth (28"“30% in non-core regions), higher retail vs. wholesale performance, and deliberate channel inventory reduction. Inventory is now at 4 weeks. Product launches (e.g., Promaxx series for western markets) and captive finance initiatives (piloting) are expected to improve market share gradually, with full impact likely in H2 FY26.

Question 2:
"Where does the channel inventories stand now? The reason I'm asking this is because I thought when this whole Kubota - once the Kubota entities were merged, there were a fair bit of product interventions that were due and even the captive FinCo, so when do we see the impact of all this start to reflect in terms of market share improving and growth coming back?"

Answer:
Channel inventory is reduced to 4 weeks (from 5"“6 weeks earlier). Product interventions like the Promaxx series (targeting underpenetrated regions) and captive finance (piloted in select districts) will drive gradual market share gains, with significant improvements expected in H2 FY26.

Question 3:
"Any update on the Greenfield plant which we are looking for"”what are hurdles there because it's now almost more than 6 months since we cancelled the Rajasthan plant location?"

Answer:
Land acquisition by the UP government is delayed. The company awaits completion of formalities post-acquisition. The plant's progress hinges on the state's timeline for acquiring land from farmers.

Question 4:
"On the construction equipment business, given that emission norms have been implemented from Jan '25, what would be our outlook for FY '26 and what kind of price increases we have taken in this segment?"

Answer:
BS-V transition led to 5"“10% price hikes. FY26 volumes may stay flat due to cost pressures, but mid-term growth is expected from infrastructure projects. Margins may recover gradually as price hikes stabilize, though monsoon-related demand slowdown in Q1 could delay recovery.

Question 5:
"What is driving the recovery in exports, and what is the outlook?"

Answer:
Exports improved due to resumed supplies to Kubota's global network (27% of export volume). Focus on Europe with specialized products and localized sourcing. FY26 exports may grow 20"“25% from a low base (FY25: ~5,000 units), pending demand recovery in Europe.

Question 6:
"What caused the 160 bps YoY decline in Agri machinery margins?"

Answer:
Margin decline was due to Q3 production cuts (vs. Q2 inventory buildup), commodity inflation (~0.5% impact), and higher festive discounts. Margins will improve in Q4 with softer commodity prices and reduced discounts. Sustained margin recovery hinges on volume growth and cost optimization.

Question 7:
"What is the industry outlook for Q4 and FY26 post-budget announcements?"

Answer:
Q4 FY25 tractor industry growth is projected at 14"“15%. FY26 outlook depends on monsoon performance, but continued growth in infrastructure and agriculture sectors supports optimism. Temporary CE industry slowdown (due to BS-V transition) may stabilize post-monsoon.