Escorts, an engineering conglomerate with interests in agri-machinery, construction & material handling, railway equipment and auto components, is undertaking a slew of measures to become more lean and profitable. It is planning to rationalise its workforce to control costs, modify its product mix, find synergies in back-end activities including raw material sourcing, improve production efficiencies and enhance technology and brand tie-ups globally.
Last year, Escorts decided to merge three group companies — Escorts Construction Equipment, Escorts Finance & Investments and Escotrac Finance Investments & Leasing — with itself. The intent was to streamline the group structure and integrate various businesses. As part of the streamlining process, areas like human resource, raw material sourcing and IT support were taken up on a priority basis. “Post the merger, Escorts has been on an aggressive cost cutting mode,” Nikhil Nanda, joint managing director, Escorts, told FE. “We have been identifying areas of synergies and rationalising processes.” Escorts spent R419.78 crore on its workforce in the year ended September, 2012.
The company is also aiming to save cost and create space for newer businesses by releasing operational space at its four plants in Faridabad, Haryana.
“The plan is to vacate one-third of our operational space at our four production sites in Faridabad to save cost and at the same time enhance production efficiencies,” said Nanda. Moreover, the group plans to utilise the released space for other alternative business opportunities in the farm and crop solutions business. Currently, Escorts has a production capacity of 95,000 units at its four plants together, which it plans to take to over 1.20 lakh units per annum in the next three years.
Since tractors under the agri-machinery business make 75% of the top-line at Escorts and construction equipment the remaining, the group aims to enhance its profitability from these segments with a focused approach towards premium products.
During the December quarter, the company sold 17,106 tractors, an increase of 32% sequentially. Total Escorts agri-machinery sales stood at R845.7 crore in the December quarter, on revenues of R1,028.2 crore. “We want Escorts to be the most profitable tractor company in the next two years and to achieve that, we are undertaking a slew of initiatives, from cost cuts to improved premium and high technology products,” said Nanda. “We want to make good profits with good margins,” he said.
Except for the agri-machinery business where Escorts posted 9.4% growth in Ebitda margins in the December quarter, the