Back From The Brink
FROM FACING A POTENTIAL COLLAPSE TO BECOMING ONE OF THE BEST PERFORMING AUTOMOTIVE FIRMS IN THE COUNTRY, NIKHIL NANDA HAS SCRIPTED A REMARKABLE TURNAROUND STORY AT ESCORTS
From being a company weighed down by debt, to becoming a net zero debt firm, to now sitting on cash, it has been a satisfying journey. Our next stop is 15 per cent EBITDA margin, but it doesn’t end there. We want to be the benchmark in EBITDA in this industry”
the summer of 2003, Nikhil Nanda,
Chairman and Managing Director of Escorts Group, found himself perspiring in the CEO’s cabin of the company’s factory in Faridabad on outskirts of the national capital. Despite the heat, the reason for the power cut sent a chill down his spine — the power department had stopped electricity supply as the company had not paid its bills. For a manufacturing company, it represented a point of no return, the proverbial last nail in the coffin.
“Those were really dark days. I still shudder a bit when I recount them,” says Nanda, who was executive director of the company then. He was elevated as joint managing director in 2007 and then managing director in 2013 in the company founded by his grandfather more than seven decades ago.
There were many reasons for the crisis at Escorts, the largest tractor maker in the country in the 1980s. One was the huge debt it had piled up after a wave of ill-advised diversification into unrelated and capital intensive businesses like telecom and healthcare. Then, as the economy liberalised, foreign players began to go solo in the core automotive business, intensifying competition. Escorts found itself on the backfoot. By the turn of the century, jittery bankers lost faith and suggested an honourable exit for the promoters, the Nanda family.
Nikhil Nanda had barely cut his teeth in the business back then and the task ahead was uphill. The group was still in black but heavily indebted. To pare down the debt, it exited a number of non- core businesses — selling its motorcycle JV that used to make Rajdoot cruisers to partner Yamaha in 2001, auto components JV with Mahle group and construction equipment JV with JCB of the UK. But that was not enough. Even by
2004, debt was high, around ₹ 1,200 crore. Escorts needed an overhaul.
“We were confused. There were too many distractions in business. We were stretching ourselves and our resources by trying to do too many things,” he says. “We lacked focus and in business that is a recipe for disaster.”
A slow and steady comeback followed. In mid-2000s, it sold the distractions — Escotel and Escorts Heart Institute. This reduced debt and freed up some capital for the core tractor business. By the time Nanda became joint MD, a plan had started taking shape. Escorts needed to get its mojo back in tractors. “I realised early that customers still had a lot of respect for the brand and our products. They were forgiving and were willing to trust us provided we had the products. So, the plan was clear,” he says.
The first green shoots emerged in 2011. Between fiscals 2008 and 2020, the company invested a record ₹ 986 crore, mostly into product development. The outcome was a new range of tractors – Farmtrac, a range of high-power tractors that opened up a new market for the company, and Powertrac, with superior fuel economy. Domestic sales doubled from 21,011 units in FY03 to about 45,000 units in FY08. They zoomed to over 80,000 units by FY18.
At the same time, Nanda worked hard to make the company leaner, more streamlined and frugal. The efforts showed up in EBITDA margin, a barometer of a company’s efficiency. Between fiscals 2008 (12 months) and 2014 (18 months), consolidated top line grew from ₹ 2,653 crore to
₹ 6,502 crore. EBITDA margin, negative between 2003 and 2006, rose to 6 per cent in 2014.
“We sunk in a lot of investments in research and development. The products needed to speak for themselves on the farm. Our motto was simple, don’t overpromise, but overdeliver,” says Nanda. “We also instilled the feeling that we needed to earn our salaries and it had to start from me. I do not believe I own Escorts. Just because I am the promoter’s son does not justify my position. I needed to show it through results.”
The story has only become sweeter in the last six years and particularly in the last three years. In FY19, tractor sales came close to the psychological 1,00,000 mark. In the last five years, revenues have grown by an average of 22 per cent per annum while EBITDA margin, a subject of much obsession for Nanda, has risen to 11 per cent. The target is to improve it to 15 per cent, the best in the business.
“From being a company weighed down by debt, to becoming a net zero debt firm, to now sitting on cash, it has been a satisfying journey. Similarly, we have turned the corner from negative EBITDA to single digits and now double digits. Our next stop is 15 per cent, but it doesn’t end there. We want to be the benchmark in EBITDA in this industry,” he adds.
The remarkable turnaround and the sheer weight of the numbers on the back of stellar growth in last three fiscals has earned Nanda BT’s Best CEO award in the automotive sector. The story has been closely tracked by peers from across sectors and they are impressed. “What Nikhil has done is inspirational. He has galvanised and transformed his company into a sharply focussed entity that has taken a life of its own,” says Anil Rai Gupta, the Chairman and Managing Director of Havells India who is himself a second time winner in the consumer durables category.