Escorts to drive tractors to new markets, cut costs
Aims to improve performance; ties up with a global consultancy firm
Tractor maker Escorts, which has seen a robust performance in recent quarters, will launch a series of initiatives to expand market share, bring down costs and improve margins. A key initiative for controlling cost could be a voluntary retirement scheme for a few hundred employees.
“We have to get our Ebitda (earnings before interest, taxes, depreciation and amortisation) to a healthy level. Profitability is an important lever. We need to do a lot of work to achieve it. In the next three years, we will increase our efforts,” Nikhil Nanda, managing director at the Faridabad-headquartered company, told Business Standard.
The company has got a global consultancy firm to help enhance its performance. “We will be getting into a three-year contract with a firm that will help look at ways to grow market share and compress costs of material and labour,” said Nanda.
The company’s three-year performance-improvement initiative with McKinsey ended recently and resulted in improved operations.
Escorts did not share the name of its consultancy. An announcement is expected shortly.
Nanda said the company was keen to get a combination of products placed in the right markets to allow it to improve Ebitda to healthy double digits. “We want a healthy Ebitda. Whether we reach there in four or five years is irrelevant. But, the direction is very clear.”
Nanda explained the first such programme, with McKinsey, was focused on material cost. This, as a per cent of sales, came down to around 68 from a high of 75. “The new contract is much larger in intent. It is one of the largest contracts we have with any consulting agency. It will be transformational and reflect on our financial performance and building of capabilities for the future,” Nanda added. Successful inroads in new markets could drive Escorts' national share above the current 11 per cent.
Escorts has traditionally has been strong in the north and the centre. But, it now aims to be a pan-India player. “We are confident that we will be able to make inroads in the south, the west and the east,” Nanda said, adding that specific tractors were developed to effectively grow share in new markets.
He also said the company would look at a voluntary retirement scheme. “We are looking at opportunities. We have to be fitter, automate more and bring efficiencies.” The company has about 3,800 employees now, of which 2,200 are blue collar workers.
Escorts is on an upswing. Tractor sales have grown by 23 per cent in the first 11 months of the year. The industry has grown 17 per cent.
The company’s profit has surged over 54 per cent to ~101 crore in the first nine months of FY17. Volume growth has helped revenue increase 19 per cent to ~3,123 crore.
WE HAVE TO GET OUR EBITDA (EARNINGS BEFORE INTEREST, TAXES, DEPRECIATION AND AMORTISATION) TO A HEALTHY LEVEL. PROFITABILITY IS AN IMPORTANT LEVER. WE NEED TO DO A LOT OF WORK TO ACHIEVE IT. IN THE NEXT THREE YEARS, WE WILL INCREASE OUR EFFORTS” NIKHIL NANDA Managing director, Escorts