Escorts Kubota Raises FY27 Tractor Industry Forecast to Mid-Single-Digit Growth

Escorts Kubota forecasts mid-single-digit growth for the domestic tractor industry in FY27. The guidance it issued three months ago allowed only for a swing of two to three percent in either direction, which put a flat year at the centre of its expectations.

The June quarter overturned that. The industry sold a record 3.39 lakh units, up 18.6 percent. Escorts Kubota outpaced the industry growth with its domestic volumes rising 22.9 percent to 35,457 units, the best first quarter in its history, and it added 36 basis points of market share. Momentum then carried into July, when domestic sales rose 23.7 percent to 8,194 units. Across April to July, including exports, the company has sold 45,593 tractors.

"The last quarter and especially the last 45, 50 days have been very, very positive," Neeraj Mehra, chief officer of the tractor business division, told analysts on the company's Q1 FY27 earnings call. He expects Escorts Kubota to keep outgrowing the industry and to add further share.

Regional mix

The upgrade rests heavily on a region where the company has been thinly represented. Industry volumes in southern India rose about 33 percent during the quarter, well ahead of the 19 percent recorded nationally. Escorts Kubota gained 50-60 basis points of share there, lifting its combined Farmtrac, Powertrac and Kubota position to around 6 percent.

"South, which has traditionally been our weak geography, the industry growth has been highest over there," Mehra said.

Its established northern and central markets also outpaced the rest of the country, growing about 22 percent, against 15.4 percent elsewhere. Two state-level questions were put to management on the quality of that growth. Uttar Pradesh, Mehra said, grew organically with no subsidy involvement. 

Gujarat did draw on a state subsidy, but he described it as an annual programme that varies only in timing and quantum rather than a one-off intervention.

Portfolio gaps

Product has done much of the work. The Powertrac Shaurya range, launched for southern markets late in Q4 FY26, has driven much of the regional gain, helped by dealer additions filling white spaces in the network. Farmtrac Promaxx, the four-wheel drive model,  now accounts for over 20-22 percent of Farmtrac sales. Digitrac contributes 23-25 percent of Powertrac volumes after a 4x4 variant was added to the range.

There’s a gap that remains in the same configuration.

"A major gap is in the 35 to 50 HP segment in the four-wheel drive. The four-wheel drive market is actually growing across the country," Mehra said. "There are certain states which are highly driven by the four-wheel segment. So there we have not done well."

Powertrac models in that band are due over the coming months. Under the Kubota brand, launches are planned in two areas: the 20 hp to 30 hp orchard and compact category and the 41 hp to 50 hp segment, which between them account for 77-78 percent of the industry.

Exports

Escorts Kubota shipped 1,405 tractors in the quarter, down from 1,733 a year earlier, at a time when industry exports rose 17.7 percent to 29,778 units. Suggesting exports moved the other way. 

The divergence is structural. Industry growth came almost entirely from the above-40 hp band, which expanded around 30 percent and where the company's presence is limited. Its own strength lies in compact tractors below 40 hp, and that segment contracted about 8 percent. Vessel availability tied to the West Asia situation delayed shipments on top of that. The Kubota global network absorbs roughly 61 percent of what the company exports.

Management expects exports to finish FY27 flat, recovering the shortfall over the remaining quarters, with FY28 growth contingent on the North American market opening up. Component exports, worth Rs 160-170 crore last year, were flat in the quarter and are expected to more than double in value within two years.

Costs and pricing

Mehra declined to project volumes quarter by quarter, pointing to the number of variables still in play. "It will not be very prudent for me to estimate at a quarterly level or a monthly level because of the shift of seasons and high base and GST last year," he said.

The festive season begins in October, later than usual. Inventory at the company's dealers stands at around 30 days, a level he called comfortable, and will rise as the season approaches, though he rejected the framing put to him.

"I'll not say push stock into the system. I'll articulate it as build stock," he said.

Costs are the counterweight. Input costs on the tractor business rose about 5 percent during the quarter. Roughly one percentage point of that came from higher minimum wages for contract labour in Haryana, a burden specific to Escorts Kubota, leaving an industry-wide commodity impact of about 400 basis points. A further 1-2 percent is expected in the second quarter.

That pressure shows in the margins rather than the top line. Agri-machinery revenue rose 26.8 percent to Rs 2,766.5 crore, but segment EBIT margin narrowed to 10.8 percent from 12.6 percent. 

The pattern repeats at the company level, where standalone operating revenue from continuing operations rose 28 percent to Rs 3,178.9 crore while EBITDA advanced only 9.4 percent to Rs 355.4 crore. The EBITDA margin fell to 11.2 percent from 13.1 percent. Reported profit is not comparable year on year, the base carrying both the railway equipment divestment and a Rs 76 crore gain on land and buildings.

April's price rise of 1-1.5 percent will be followed by another, said Bharat Madan, whole-time director and chief financial officer, with quantum and timing unsettled and no expectation of recovering the full cost increase. It will also not be withdrawn once conditions ease.

"No one will take price increase only for three, four months and disturb the market," Madan said. "Whatever we do will be something which will continue in future."

He expects the reversal in commodity costs to begin in the fourth quarter.