In a program titled ‘Covid-Shield’, India’s leading engineering conglomerate, Escorts Limited announced several Covid-relief measures for its Dealerships, including a no-questions-asked financial aid of Rs. 20,000/- for its select dealership employees, upon testing positive for Covid-19. 

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The entire sales and service staff of Escorts dealerships is covered under this program effective 24th April, 2021. To get this instant financial aid of Rs 20000, the dealer just needs to send an authenticated Covid-19 positive report of its employees to Escorts, and the aid is directly transferred to the account of the affected employee. 

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In addition to the above, Escorts is also reimbursing the cost of vaccination for all field sales employees of its dealers. Escorts have also announced a grant of Rs 1 lakh for family of deceased dealer employees as additional financial support for its dealership staff. The above programs are being run with support of Escorts Dealers Development Association Limited (EDDAL), a unique cooperative venture of Escorts and its dealers. 

Speaking about the measures, Shenu Agarwal, Chief Executive Officer, Escorts Agri Machinery, said “Serving farming community is our primary purpose. Our dealership staff plays a prominent role in fulfilling this. Through our Dealer Covid-relief measures, we wish to ensure their well-being so they can in turn continue to serve the farmers of our country”

Kotak believes the tractor industry is likely to show strong growth over the next two years led by:
(1)    good monsoons over the past two years
(2)    improvement in financing by NBFCs and private banks
(3)    stable crop prices and higher Rabi crop output than the previous year. Two consecutive above-normal monsoons (cumulative rainfall in India was 9% above long-term average in FY2021 and 10% above long-term average in FY2020) augured well for the domestic tractor industry.

Overall correlation of monsoons with Escorts tractor sales is quite high (60%), barring states that have high irrigation intensity (percentage of irrigated areas across all crops in the state), which have shown lower correlation to monsoons with tractor sales. The government has also announced a 3-6% yoy increase in MSPs for Rabi crops, which we believe will boost farm income.

Escorts Financiers continue to remain aggressive in lending (90% of the tractors are financed), given strong rural cash flows. Water availability in reservoirs is 20% above long-term average (refer to Exhibit 5), which also boosts crop prospects. With supply-chain normalizing and lower inventory levels, Kotak expects tractor OEMs to report strong wholesale numbers over the next two quarters. Kotak expects the domestic tractor industry to grow by 15% yoy in FY2021E followed by 10% yoy growth in FY2022E. Kotak expects Escorts to grow broadly in line with the industry, maintaining its market share around 11-12% over the next two years.

Kotak believes Escorts can export additional 15000-20000 tractors at least, over the next five years as Kubota opens its distribution network. Kotak expects export volumes to grow at a CAGR of 23% over the next three years. With revival in the economy and government spending, Kotak expects construction equipment and railway segment revenues to grow by double-digit CAGR over FY2022-23E.