Tanishk_Ojha ANNUAL REPORT 2022 Escorts Kubota Limited is a starting point of a very exciting future ahead of us. It is also a reflection of the ideology of our founder’s vision – to bring the world’s best to India (Kubota’s technology and processes) and offer India’s best (Escorts frugal engineering strength) to the world through Kubota’s global presence. The collaboration stands committed to providing advanced FarmMechanisation solutions to address global food security and enhanced farm productivity needs. Also, we have initiated a MTBP – Mid Term Business Plan for the future and we are making plans for FY2028. This is jointly being created between Escorts Kubota and Kubota Japan and we expect this to be finalised by Q3 of this year, and thereafter we will share this plan with you. We are seeing India develop as a hub for manufacturing and supplying certain range of tractors with differentiated HP into markets like in Europe and other Asian markets and with its competitive pricing there is good leverage too. Going forward, we will have three powerful brands in our tractor portfolio. Kubota would stand for premium quality and technology offering unmatched customer experience, Powertrac would compete in the mass market with fuel efficiency and total cost of ownership as its hallmarks, and Farmtrac would continue to attract productivity-oriented customers who needs powerful and robust tractors. We believe the next phase of growth in the agri sector would come from mechanising the entire crop cycle, right from land preparation to post-harvesting activities, thus helping farmers boost their farm productivity. To solve the issue of affordability, our subsidiary EscortsCropSolutions would play an important role here by offering a business model which allows use of these technologies without the need for farmers to own or invest in an asset. Our new Farmtrac Series, from 50 to 65 HP with new styling and ergonomics and with upgraded transmissions, is under market testing. We plan to commercialise this during the current year. We also launched our new FARMPOWER Self-propelled Boom Sprayer in the past year. This product has the potential to mechanise the entire spraying activity for field crops, reducing input costs and increasing crop yields, other than reducing the dependence on already depleting farm labour. This product is also under test marketing in collaboration with some leading agrochemical companies. First time ever, we have started supplying Indigenously developed dampers to Metro and have also put newly developed products, Air Spring, EMCBS, Brake Disc & Brake Pad into the field trial with Indian Railways. This will further catapult growth in our Railway business - With Kubota as a strategic partner, our exports opportunity shall multiply. Focus on railway business operations has been high on expanding customers beyond Indian Railways such as private wagon builders, expanding our product range through introduction of new products, focussing on quality, enhancing our capacity – internal as well as of our supplier partners and improving overall cost efficiency. - We intend to focus on the growth of our railway division as we estimate significant revenue from RED by FY2025. After a record performance on profitability and free cash generation from operations last year, FY2022 had a negative free cash from operations essentially due to higher working capital requirements coupled with drop in sales volumes and profitability. The last five‑year domestic industry CAGR is at 7.7%. It is common belief that Indian market needs at least 13-14 million tractors while the current population is only 6-7 million units. We therefore expect the tractor market to continue to grow in the range of 4-6% CAGR over the next decade. Similarly, construction equipment market is poised for a massive growth in the future, with Government’s clear focus on infrastructure development in the country. Further, we have put more emphasis on the non-Indian Railway business comprising exports, metro and wagon builders. The focussed approach saw Non-Indian Railway revenues growing by more than 95% during the year. We expanded our presence in newer markets of Asia and Africa to bolster our growth. During the year, we entered into the metro segment with our first product and supplied ‘Dampers’ to Chennai Metro. We established a joint venture with the Tadano group in 2018. This year, we are launching a new, hybrid pick-and-carry crane that runs on diesel and CNG. - We manufacture the most fuel‑efficient and versatile tractor in India – Atom26, and our earthmoving equipment brand Digmax II ranks superior even to its global peers On the tractor export side, the industry was up in FY2022 by 45.2%, with the highest ever 1.28 lakhs tractor volume as compared to 0.88 lakhs tractors in the previous fiscal. We witnessed a Heat Wave in the beginning of FY2023, which has started to deplete the water reservoir levels in some parts of the country. However, we remain positive. Tractor market share improved from 10.2% to 11.8% between FY2016 and FY2019. However, over the following two years it recorded a marginal decline to 11.3% in FY2021. In FY2022, our market share declined by 1%, as the industry in our strong markets like UP (at -14% to -15%) and Bihar (at -20%) underperformed compared to some of our weaker markets such as Maharashtra (at +20%), Karnataka (at +5%), Andhra Pradesh (at -3%) and Gujarat (at -4%). We are poised to gain market share in Agri-Machinery by way of consistent product innovation, dual distribution strategy (Farmtrac and Powertrac brands), focused marketing efforts, financing solutions for channel partners, scientific sales management and comprehensive after-sales support. The three major heavyweights in the industry are earth moving equipment (backhoe loaders), contributing the lion’s share by value, material handling (cranes) and road building (compactors). These three account for 52% of the industry. With the addition of the excavators to the mix, the concentration goes to 81% of the total market for construction equipment. Our served industry (backhoe loaders, pick-n-carry cranes and compactors) went down by 23% in FY2022 compared to FY2021. Only the Crane industry showed marginal growth of 1.8% while shifting to the price-sensitive HYDRA segment. Compactor segment declined by 11.6% and the backhoe loaders industry went down by 28.2%. The JV with Tadano is helping fill key white spaces in the high margin cranes segment. It manufactures rough terrain and truck mounted cranes in the fast growing 20-80 tonnage category. These cranes cater to big construction companies servicing oil refineries, metro rail projects, SmartCity construction, solar power projects and ports, among others. - The distributorship agreement with Doosan Infracore enables us to cater to a much larger proportion of the overall construction equipment industry, which includes crawler excavators. During the year, we sold 55% of the pick-and-carry cranes from the Hydra category with lower margins as compared to 58% in FY2021. But margins were impacted due to steep price increases as a result of emission norm changes coupled with higher inflation in commodity prices and muted rentals, impacting retails sales. Low-cost manufacturing countries are expanding their distribution centres and after-sale network in India, which is a challenge for high-end construction equipment. These foreign players pose as competitors for Indian construction equipment exports not only in Indian markets but also across developed markets. We mitigated this threat through our JV with Tadano, which helped us become poised within the segments we serve. The government announced 400 new-generation Vande Bharat trains, which will be developed over the next three years, besides 100 cargo terminals to be developed in the near future. - Growth drivers over the medium to long term include increase in ordering of rolling stock of freight wagons; conversion of conventional to the modern LHB coaches; new metro rail projects; new high-speed indigenous train launches; continued emphasis by the railways on safety and modernisation; and future surge in replacement demand. The division will expand its range of new products and explore inorganic growth opportunities, particularly with the Indian Railways introducing a new class of coaches and locomotives.
