Escorts looks at capex of Rs 350-Rs 400 cr in ongoing FY

Escorts Limited is looking at capital expenditure (capex) of Rs 350-Rs 400 crore in the current financial year (FY), driven by a pick-up in demand due to a boost in economic activity.

Group chief financial officer Bharat Madan told the media that all its three business verticals outlook — Agri machinery, construction equipment, and railways — was optimistic as the market was seeing a recovery.

The farm sector is witnessing some positive tailwinds, amid strong crop costs and anticipations of normal rains this monsoon season. This is likely to motivate farmers to spend more on purchasing tractors and other farm equipment. At Escorts, tractor sales in the local market in April-May grew by more than a fifth from a year earlier to 15,343 units.

Tractor manufacturers predict the demand momentum to continue via this fiscal year. Escorts sees tractor sales gradually enhancing — despite low crop yields in the rabi season due to severe heat situations — because of better commodity costs and prediction of normal rainfall.

The industry evaluates the tractor market to increase by 4%-6% in the current FY23. Tractor industry volume had declined 6.4% to 842,000 units in FY22, after rising 26% in FY21.

In the tractor industry, recovery has taken place, and volume-wise the view is positive this FY, said Madan, adding that commodity and material costs too appear to have peaked in May. Though, it will take 3-4 quarters to recover the growth in input prices due to the lag effect.

Escorts gets about three-fourths of its revenue from the tractors' sales.

In the construction equipment sector, demand is likely to grow in healthy double digits in the ongoing FY on the back of increased government spending on infrastructure projects, particularly in rural regions. The industry estimates construction equipment sales to increase 15-20% in fiscal 2023, against an 8% drop last fiscal year.

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