Domestic tractor industry may see lower mid-single digit growth in FY25: Escorts Kubota

In the first few months of FY25, India's domestic tractor industry may witness a slight decrease in demand on account of various factors, including the ongoing election, low reservoir water levels, reduced haulage activity, and a moderate rabi output. However, on a full-year basis, the industry may see lower mid-single-digit growth, the top leadership of Escorts Kubota informed during a post-results earnings call with the analysts.

The projections from the company come even as the domestic tractor industry in FY24 went down by 7.4% to 8.76 lakhs, down from a record high of 9.45 lakhs in the previous year. This decline was attributed to factors such as festive ships, erratic, uneven, and deficient rainfall, as well as a lower water level in the reservoir, leading to delayed crop harvest and sowing and lower output. On the export side, during FY24, the industry was down around 21.4% to 0.98 lakh tractors as compared to 1.24 lakh tractors in the previous fiscal.

"Our domestic tractor volumes saw a decrease of 5.3% to 90,239 tractors as compared to 95,266 tractors in the previous year. Despite this decline, our market share increased to 10.3% from 10.1% in the previous fiscal. Additionally, our market share for the quarter ended March 2024 increased to 11.6%, a 69-basis point rise from 10.9% in the same period last year," the company management said during the call.

Escorts Kubota reported a strong increase in full-year net profit for FY24, driven by a surge in construction equipment sales. Net profit jumped 64.8% YoY to Rs 1,049.5 crore, compared to Rs 636.6 crore in FY23. Operating revenue grew at a slower pace, rising 5% YoY to Rs 8,849.6 crore from Rs 8,429.7 crore the prior year.

The company's construction equipment segment was a bright spot, with volumes surging 42.2% YoY to 6,548 units in FY24. This translated to a 45% YoY increase in segment revenue, reaching a record high of Rs 1,709.7 crore compared to Rs 1,179 crore in FY23. The improved performance led to a significant jump in EBIT margin for the segment, rising to 9.3% in FY24 from a mere 2.9% in FY23. This improvement is attributed to higher volumes, a favourable product mix, and effective price adjustments.

Escorts Kubota's core agri-machinery business, including tractors, saw a decline in sales volume. However, the positive performance of the construction equipment segment helped to offset this weakness and deliver an overall positive earnings picture.

Looking at Q4FY24 results, the momentum in construction equipment continued. Sales volume climbed 17.5% YoY to 1,798 units, while segment revenue rose 23.8% YoY to Rs 476.6 crore compared to Rs 384.8 crore in Q4 FY23. The EBIT margin for the construction equipment segment in Q4FY24 was 10.7%, reflecting a 264-basis-point increase from 8.1% in the corresponding quarter of the previous year.