Escorts Ltd: Leading Tractors Player

Escorts Stock Research

Escorts Ltd - The Beginning

Escorts Limited is an Indian Multinational Conglomerate, headquartered in Faridabad, Haryana. Escort manufactures equipment for Agriculture, Infrastructure & Railway. Mr. Har Prasad Nanda founded the group along with his brother Yudi Nanda in 1944. Escorts started as an Agency in Lahore, named Escorts Agents Limited.

Later, the company started manufacturing X-Ray Machines with collaboration of Westinghouse Electric Corporation, an American Company and Heating Elements with Elpo. Then in 1949, Company took the franchise of Massey Ferguson Limited, an American manufacturer of Agricultural Machinery & by 1960 the company launched Escorts Tractor Division. Later, Escorts started manufacturing Tractors with the Technological help of Ursus Factory, Poland based Agricultural Machinery producer.

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(A) Escorts Tractor

Later in 1965, first Escort Tractor was manufactured.

Since inception, Escorts Limited continued association with several Engineering Companies - Minneapolis-Moline, Goetze, Mahle, Ford, J.C. Bamford Excavators, Yamaha, Claas, Carraro, First Pacific Company, Hughes Communications, Jeumont Schneider, Dynapac, etc.

Then in 1994, Founder Chairman Mr. Har Prasad Nanda stepped down after 50 years. Then, his son Mr Rajan Nanda took over the Escorts Group as Chairman.

Today, Escorts Ltd manufactures a wide range of Tractors, Automotive components, Railway Equipment, Construction & Material Handling Equipment. Also, the company has Marketing Operations in more than 40 countries. Currently, Escorts' management involves Mr. Nikhil Nanda, grandson of Mr. H.P. Nanda & son of Mr. Ranjan Nanda, as Chairman & Managing Director.

(B) Family Structure - Escorts Ltd

Escorts group Nanda Family structure

(C) Group Structure of Escorts

Escorts has 3 Subsidiaries in India and 1 Subsidiary outside India and has 1 Associate and 3 Joint Ventures.

Group structure of Escorts

(i) Escorts Joint Venture with Kubota

In December 2018, Escorts entered into brown field joint venture with Kubota Corporation. Under the agreement, Kubota acquired 10% stake in Escorts on a post capital reduction basis. Escorts acquired 40% stake in Kubota Agriculture Machinery India (marketing & sales business of Kubota in India).

JV will establish new common manufacturing with initial capacity of 50,000 in Faridabad, Haryana. The combined initial total investment amounted to Rs 300 crore.

These tractors will be sold by both players respectively through their separate channel network in domestic market.
Also, Kubota shall export Escorts tractors through Kubota global distribution network in specific markets as mutually agreed.

(ii) Escorts Joint Venture with Tadano

In FY19 Escorts entered into a JV with Tadano to produce specialised cranes that address high capacity use cases.

(D) Shareholding Pattern

escorts ltd detailed shareholding pattern

The major promoter shareholder of Escorts is Escorts Benefit & Welfare Trust (Dr. Sutanu Behuria, Trustee). The company is itself the beneficiary of the Trust. Thus, it means the company holds its own shares through the Trust

Family members hold minor (<1%) shareholding in individual capacity. Family's Private companies hold around 11.58% of the total shares.

Major shareholders

(E) Executive Management of Escorts

(i) Nikhil Nanda - Chairman and Managing Director

Nikhil Nanda is the grandson of Mr. Har Prasad Nanda & son of Mr. Rajan Nanda. He holds Bachelor's Degree in Finance & Marketing from The Wharton School of the University Pennsylvania, U.S.A. Before joining the family business, he was associated with Gillette India as a trainee. Then, he started his career as an Executive with BKC Home Products Private Limited. Later, In 1996, he joined Escorts Limited and by the year 2005, he became Chief Operating Officer. He served as Joint Managing Director for 6 years (2007-2013) and then became Managing Director in September, 2013.

In August 2018, he became Chairman of Escorts Limited after the demise of his father Mr. Rajan Nanda on 5 August 2018. Age of Mr. Nikhil is 46 years. He is on the Board of Escorts Limited since 1997.

His remuneration for FY20 amounted to Rs. 11.13 crore which is 0.19% of the total revenue & 2.36% of the PAT.

(ii) Mr. Shailendra Agrawal - Executive Director

Mr. Shailendra Agrawal is Bachelor's in Engineering (Mechanical). He holds vast experience of 35 years in Tata Motors, Hero Motors and Escorts Limited. Mr. Agrawal worked as Chief Operating Officer of Escorts Limited from 2008 to 2013. In addition to COO role, he became head of R & D department of Escorts in 2013.

He served Escorts as Business Transformation Lead from 2015 to 2016, in addition to his COO role. In 2016, he became Chief Executive (Operations and R & D -EAM and ECE) and still serves in this role. In 2019, he became the Executive Director of the company. Age of Mr. Agarwal is 58 years. He played a vital role for group level business performance and profitability and will also guide the company’s Vision 2022.

His remuneration for FY20 amounted to Rs. 3.229 crore which is 0.68% of the PAT.

(iii) Ms. Nitasha Nanda - Whole Time Director

She is sister of Mr. Nikhil Nanda. She is a Commerce graduate from University of Delhi. Later, she worked with Price Waterhouse, ANZ Grindlays Bank, Hewlett Packard, Escorts Finance Limited & other reputed organizations in the area of Business Strategies, Financial Management, Operational Research and Managerial Techniques, among others.

Ms. Nanda is responsible for managing the company's subsidiary companies which include Escorts Securities Ltd & Escorts Asset Management Ltd.

Her remuneration for FY20 amounted to Rs. 2.62 crore which is 0.56% of PAT.

No members from generation ahead of Mr. Nikhil Nanda yet involve in the business.

(F) Product Categorization of Escorts

(a) Agri Machinery

Escorts Agri Machinery Division launched in 1960. The company manufactures its Tractors under the brand names of Farmtrac, Powertrac and Steeltrac. Under these brands, Escorts offers more than 225 variants in the 12 to 75 HP range. Escorts Agri Machinery Division also provides Crop Solutions, Engines, Spare Parts & Lubricants, SHIP (Sprayers, Harvesters, Implements and Planters) and Gensets. Escorts also exports Farmtrac and Powertrac series of its Tractors and Spare Parts & Services to 62 countries all across the World.

(b) Escorts Constrction Equipment

Escorts provides equipment for Material Handling, Road Building, Earth Moving and other services. This range of Construction Equipment includes -

  • Earthmoving Equipment - Backhoe Loader, Excavator, Wheeled Loader.
  • Material Handling Equipment - Pick and Carry cranes
  • Road Building Equipment - Compactors, Pavers, Asphalt Finishers.
  • Concrete Equipment - Mixers, Pumps, Batching Plants.
  • Material Processing - Compressors, Crushers.

Escorts also Exports its Earthmoving Equipment, Hydraulic Mobile Cranes and Compaction Equipment to Infrastructure development, Mining, Realty, and other sectors.

(c) Railway Equipment Division

Escorts manufactures critical Railway Components since the launch of Railway Equipment Division in 1962. Escorts Railway Equipment Division offers - Brake Systems, Couplers, Suspension Systems, Shock Absorbers and Rail Fastening Systems to Indian Railways.

(G) Revenue Segmentation

(i) Product-Wise Revenue

Escorts Agri Machinery Division is the major Revenue generating Segment of the company.

Escorts Ltd revenue segmentation FY20

(ii) Geographical Classification of Revenue

A major portion of company’s Revenue comes from India. In F.Y. 2019-20, 95% of Total Revenue is from India and 5% comes from outside India.

Escorts Ltd revenue segments as per geography

(H) Key Performance Parameters

(i) Revenue over last 6 years for each Product segment:

Agri Machinery Revenue of Escorts
Construction equipment revenue of Escorts
Escorts Ltd railway equipment revenue growth

(ii) Volume of Agri Machinery

(a) Domestic Volume - Number of Tractors

Volume of tractors sold domestic market of Escorts

(b) Exports Volume
- Number of Tractors

Exports volume of Escorts Tractors

(c) Total Tractors Sold (Domestic + Exports)

Escorts tractors volume over last 6 years

(iii) Volume of Construction Equipment

Volume of 6 years of Escorts construction equipment sold

(I) Manufacturing Facilities

Escorts Ltd owns total 8 Manufacturing Facilities - 7 Manufacturing Facilities in India as well as 1 Facility outside India.

(a) Agri Machinery Division - 3 Manufacturing Facilities in Faridabad, Harayana &1 Facility is in Poland. Also, Company's 1 Plant as a part of the JV with Kubota Corporation, Japan is under construction.

(b) Escorts Construction Equipment - 1 Manufacturing Facility in Faridabad, Haryana.

(c) Railway Equipment Division - 2 Facilities in Faridabad Haryana.

(J) Manufacturing Capacity

For the year ended 31 March 2020:

  • Escorts' Manufacturing Facilities in India for Agri Machinery Equipment have current production capacity of 1,20,000 units annually. Facility available in Poland also has capacity of 2500 Unit p.a.
  • On the other hand, Facility for Construction & Material Handling Equipment provides a capacity of 10,000 units annually.
  • Further, Escort's Manufacturing Facilities For Railway Division provide for capacity to produce 9,600 AARH Couplers, 2,580 SHAKU Couplers, 18,000 Air Brakes 1,500 EP Brakes and 9,99,996 Brake Blocks annually.

(K) Has the company expanded capacity over last 10 years?

Escorts Ltd did not expand its installed capacity over last 10 years. The installed capacity of tractors is 1,00,000 units per year and not changed since FY10. Now, post its joint venture with Kubota which is 'Escorts Kubota India', the installed capacity of tractors will be 1,50,000 units.

Growth of volumes of Escorts in comparison to the Industry:

Domestic data

Escorts volume comparison with the overall tractors industry

Till FY17 the company's tractor volumes remained at the level of 60,000 to 65,000. In FY17, volumes rose by 24%. In FY18 volume rose by 26% to reach level of 80,417. Then in FY19, volumes rose by 20% to reach 96,412 tractors.

In FY17, FY18, FY19 Escorts's volume growth surpassed industry volume growth. During these years, company's volumes increased without expanding the installed capacity.

(L) Distribution Network

Escorts Limited has a strong Distribution Network that ensures a wide reach with over 5500 Suppliers & Contractors, over 1000 Authorized Dealers as well as 500+ Customer Service Touch-points, across India.

(M) Market Share

Escorts' pan-India Tractors Market Share stands at 11.6% for year ended March 2020. Moreover, company holds a strong presence in States - Punjab, Haryana, Rajasthan, Uttar Pradesh, Madhya Pradesh and Bihar. Escorts enjoys 18-20% share in North India. Company's Market Share in South Region is 5% for F.Y. 2020. Also, the company is focused on expanding this share through newer launches and expanding Dealer Network.

Moreover, Market share of Escorts increased from 10.3% in FY16 to 11.6% in FY20.

Other Major Players:

Escorts Ltd is among the top 4 leading players of Indian tractors industry. These players hold 82% of the market share.

Only domestic data:

Market share of top 4 leading tractors players in India

(N) Financial Parameters

(a) Net Sales

Net sales growth of Escorts Ltd

(b) Profit After Tax

Escorts detailed research report with PAT growth analysis

(c) Free Cash Flow

Free cash flow Analysis of Escorts Ltd

Escorts' free cash flow remained positive in most of the years over last 10 years. There was a huge negative free cash flow for FY19. This is because of issue with working capital. Normally the 4th quarter of the company is better performing as compared to first 3 quarters. Thus, during December 2018 & January 2019 company's production ran at high utilization levels. But the Navratra season postpones to April. Thereby, higher levels of inventory & receivables.

Moreover, the company's cumulative cash flow form operations for last 10 years almost equate with cumulative profit for last 10 years.

(O) Significant Ratios of Escorts Ltd

(i) ROE of Escorts

ROE growth of Escorts Ltd

(ii) ROCE of Escorts

Company has been maintaining healthy ROCE over the past 5 years.

Escorts detailed research report with details of ROCE growth

As mentioned above, company's tractor volumes grew in line with industry growth from FY17, the company's return on capital employed (ROCE) & ROE improved significantly in these years. The company did not expand its installed capacity, i.e. no major capital expenditure done. Rather the volumes & sales increased with the same installed manufacturing capacity.

(iii) Total Debt/Equity Ratio

The company has significantly decreased its debt over the past years. The company has not done major capital expansions for over 10 years. Thus, the debt reduced significantly.

Debt equity ratio

(iv) PBIDT Margin

EBITDA Margin growth over last 6 years

(v) PAT Margin

PAT Margin of Escorts Ltd over last 6 years

Escorts raw material cost reduction:

Each year, in the annual reports, the management highlighted company's focus on cost reduction. Thus, the margins improved significantly over last 3 years. Even for FY20, the margins did not fall even on account of lower sales. In May 2019, the management disclosed the following cost reduction:

Escorts 2019 Reduction Of Material Cost Over The Years

(vi) Dividend Pay-Out Ratio

Dividend Payout of Escorts Ltd

(P) Other Key Highlights of Escorts Business

  • The company's financial parameters are strong.
  • Margins improvement over last 3 years signify improved operating efficiency, driven by cost reduction initiatives of the company.
  • Escorts holds a healthy market position. Moreover, with partnership of Escorts with Kubota Group, the market position of Escorts in high-end value utility tractor range is likely to get benefitted in domestic and exports markets.
  • Diversified product portfolio also supports growth even during cyclical industry movements.

(Q) Valuation of Escorts

  • Market Cap as on 25 September 2020: Rs 16,221.95 crore.
  • Trailing PE (June 2020)= 33.85
  • Enterprise Value (EV) (25 September 2020) = Rs 15,916.27 crore.
  • EV/EBITDA = 21.16
  • Earning yield = 5%
  • Cash and Investments as on 31 March 2020 = Rs 1,145 crore
  • In the recent history, company's ROCE expanded significantly. Also, the earnings growth improved in last 4 years.

(R) Opportunities and Risk/Concerns


Largely, the industry's growth depends on the ease of access to credit for farmers. The major positive factors include

  • Good rain
  • Steady rabi & pre monsoon kharif sowing
  • High water reservoir levels
  • Farm loan waivers as well as direct cash transfer schemes and
  • Also, more budget allocation towards sector.

Secondly, the construction equipment segment depends on growth of infrastructure & urbanization of the country.

(i) Agri Machinery

  • Modernization - Rapid Modernization has been observed in Agriculture Sector as the demand for substitution of Manual & Animal Labour increased over past few years. Increasing Up gradation of irrigation facilities is also a key factor that facilitates demand opportunity for the company.
  • Robust Demand - In India, a large population is the principal driver for agricultural products. Improving demand for agricultural inputs as well as storage capacity for agricultural produce over past years, has facilitated the sectoral growth.
  • Government Support - The Government of India is focused on doubling farmers incomes by the year 2022 and has introduced new schemes like Paramparagat Krishi Vikas Yojana, Pradhanmantri Gram Sinchai Yojana and Sansad Adarsh Gram Yojana. NABARD will also provide 30,000 crores as emergency Working Capital Fund to help small and marginal farmers for post-harvest of Rabi crops and for the preparation for Kharif crops. All these policies will increase demand for Agri Machinery equipment and the company has an opportunity to seek leverage.
  • Strategic Alliance - Escorts collaborated with Japan’s Kubota through a JV in December 2018 to establish a new common manufacturing line with an initial capacity of 50,000 tractors. These will be sold through respective channels in the Indian market. This venture will also add new avenues of growth through product innovation & complete farm mechanization solutions.

(ii) Escorts Construction Equipment

  • Government Policy - Ministry of Road Transport & Highways announced to develop 2,500 km of access control highways, 9,000 km of economic corridors, 2,000 km of coastal and land port roads and 2,000 km of strategic highways in FY 2020-21. This will robust the demand of company's Construction Equipment and will create the opportunities of growth.
  • New Partnerships - The JV with Tadano, world’s leading mobile crane manufacturer from Japan, enables Escorts to cater to a much larger proportion of the overall construction equipment industry and will help fill key white spaces in the high margin cranes segment.
  • Urbanization and industrialization - Rapid pace of urbanization & industrialization leads to development of Infrastructure Industry. Thus, will create multiple opportunities for the Construction Equipment manufacturers like Escorts to boost their sales & increase profits.

(iii) Railway Equipment Division

  • High-speed Connectivity - Government of India enhanced focus on the improvement in Urban-rural connectivity. Such focus opens abundant opportunities in this sector.
  • Government Support - In Union Budget 2020-21, the Government announced various Expansion plans - Rs 12,000 crores for construction of New Lines; 2,250 crores for Gauge conversion; 700 crores for Doubling; 5,786.97 crores for Rolling Stock; 1,650 crores for Signalling and Telecom. Thus, Escorts has an opportunity to seek leverage of this policies.


(a) Decline in Soil Fertility

Decline in soil fertility over the past years has direct impact on the Farmers' growth & income and is a threat to their livelihood also. Thus, Escorts has risk of loosing its important stakeholders and consumers.

(b) Monsoons

India’s agricultural sector is dependent on Monsoons and as the Tractor industry is dependent on Agri sector, irregular/delayed monsoons form major risk for the company. Thus, they directly effect company's sales volume & revenue growth.

(c) Dependent on Government Policies

Escorts is dependent on Government policies in Construction Equipment & Railway Equipment sectors. These policies directly and indirectly impact the company's Sales & growth because Construction Equipment & railway Equipment sectors largely depend on public spending.

(d) Raw Material Cost

Increasing price of metals such as Steel, increases the Raw Material Cost of the Company & can affect the bottom-line growth of the company. Profitability is also constrained by the limited ability to pass on any increase in raw material costs to customers in a timely manner, given the competitive nature of the industry.

(e) Fuel Prices

Rising international crude oil prices exert an upward pressure on automotive fuel in India and raise the cost of equipment ownership, adversely impacting Company's end users.

(S) Management Discussion & Concall Highlights

Noteworthy points from Management Discussion & Analysis & Concall held in July 2020:

  • The management expects the joint manufacturing venture with Kubota to start production from September 2020,
  • Kubota’s products will be priced at the premium end in order to compete with the likes of John Deere.
  • Also, Management guided for 10,000 tractors in the export market by FY23. The current export level for FY20 is 3,766 tractors.
  • The ratio of Farmtrac & Powertrac in product mix improved to 41:59 during Q1 FY21, as compared to 39:61 in same period last year.
  • The availability of farm labour is cyclical and there is a possibility of labour shortage during the peak season, thus, farm mechanization is a key priority in improving farming outcomes.
  • The government is also generating multiple opportunities. Escorts will seek to leverage the same through its collaborations.
  • As per the Management, the rising use of tractors for commercial purposes in villages have supported a shift in preference towards higher HP tractors.

Outlook for FY21:

  • Management expects the domestic tractor industry to grow in low single-digits over the year.
  • Supply constraints is going to be a major challenge for the next 2-3 months. Management expects the situation to go back to normal by mid-Aug 2020.
  • In the Railway Equipment Division, Escorts received orders of INR 4.8bn at the end of Jun-20 with an execution timeline of 12-15 months.
  • Moreover, the management expects railways division to grow by 15% YoY in FY21.
  • The management's estimated capex for FY21 is INR 225-250 crore.
  • Company expects to expand its Market in South Region also through newer launches & by expanding their Dealer Network.
  • Also, Escorts plans to cut its fixed costs by 10-15% in FY21.
  • As per the Management, Breakeven level for construction equipment division is 230-250 machines per month. The management expects to reduce this level further by end of FY21.
  • Company also expects that commodity prices will not rise in Q-2 of F.Y. 2020-2021.
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References:  Annual Reports, News Publications, Investor Presentations, Corporate Announcements, Management Discussions, Analyst Meets & Management Interviews, Industry's Publications. 

Disclaimer: The report only represents personal opinions and views of the author. No part of the report should be considered as recommendation for buying/selling any stock. Thus, the report & references mentioned are only for the information of the readers about the industry stated.

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