Escorts expects positive surprise from construction equipment business

Shares in engineering firm Escorts jumped about 4 percent after it posted a near 93 percent surge in first-quarter net profit.

On business front, Madan said, “All the businesses are doing extremely well compared to last year so our guidance of 100 bps improvement is intact even now.”

'We expect positive surprise from construction equipment business going ahead," he added.

On full year basis we expect margin close to 17-18 percent range in railway business, he further mentioned.

A: This time the industry has done pretty well. So most of the growth which has been coming from volume which is what is happening on the offering leverage side and to some extent we have some pressure on the cost side too because of inflation coming in, otherwise the margins could have been better if you look at the Q4 margins which we had. So we missed some numbers there in the tractor business margin which we were expecting could be close to 15 percent plus but with inflation and some mixed issues we missed some of the guidance on that part.

A: We had done price increase in first quarter also, so roughly 50 percent of the inflationary trend which we face on the commodity side, the balance we had passed on in July. So hopefully this quarter we will not that impact coming from inflation.

A: We still maintain that because all the businesses are doing extremely well compared to last year so our guidance of 100 bps improvement is intact even now.

A: This is one sector which can give positive surprises. The kind of growth we are seeing on the infrastructure space is huge but there can be some slowdown because as we move closer to the election period there will be some slowdown on the infrastructure spending from the government side because it was largely driven from public spending but generally we think this sector can give us very positive surprise going forward.

A: It’s largely public spending like the road sector is doing extremely well, the mining has also picked up. So both the sectors are in demand.

A: It was a combination of better product mix this time because it basically depends on what order we execute. So orderbook size continues to be Rs 300 crore plus as of end of June which will get executed over next 10-11 months but overall this time we had good mix and some good export orders which we got lead to better margins in the segment this time.

A: Yes.

A: Construction, we do not maintain the orderbook because it’s more like a retail sale. We expect the year will give us close to 20 percent plus growth in construction segment too.

A: On a full year basis we expect the margin will be close to 17-18 percent range in this business though there are new large product orders which we have which we need to execute in the balance of the year where the margins will be slightly lower because a lot of import content still is there in those, margins surely will improve.

A: That is right.

A: This year we are expecting we should be able to be somewhere around 14.5 percent to 15 percent operating margin range for tractor business. So this quarter as in pretty close to that but in next quarter Q2 may not be as good because the volumes will not be as bullish as we had seen in the past two-three quarters because the goods and services tax (GST) transaction issue, but Q3 we expect again will make more than the shortfall in Q2.

A: We are revising it upwards now. So we are looking at the growth, so we expect the industry should give anywhere between 12-15 percent growth for the full year.