Tractor maker Escorts plans cost cutting, to launch VRS for staff

Ties up with a global consultancy firm

Escorts, the tractor maker which has seen a robust performance in recent quarters, will launch a series of initiatives to expand market, bring down costs and improve margins. A key initiative to cost control could come by way of a voluntary retirement scheme for a few hundreds.

“We have to get our EBIDTA to a very respectable level. Profitability is an important lever. We need to do a lot of work to get EBIDTA levels to best in class. Between now and next three years we will take the efforts further,” Nikhil Nanda, managing director at the Faridabad headquarter company told this newspaper.

The company has roped in a global consultancy firm to further enhance its performance across various parameters. “We will be getting into a three year contract with a firm that will help in looking at ways to grow the market share, compress costs of material and labour further,” said Nanda. The company’s three year engagement on performance improvement with Mckinsey ended recently and resulted in improved operations. Escorts did not share the name if this consultancy with which it has tied up now. An announcement is expected in next few days.

Nanda said the company is keen to get a combination of products placed in right opportunity markets to allow it reach potential and improve EBIDTA to healthy double digits. “We want a respectable EBIDTA. Whether we reach there in four or five years is a matter of time. But the direction is very clear,” he said.

Nanda explained the first such programme with Mckinsey was focused on material cost and this cost as a per cent of sales came down to around 68 per cent from a high of 75 per cent. “The new contract is much larger in intent. It is one of the largest contracts we have done with any consulting agency. It will be transformational and reflect on financial performance and building of capabilities for the future. We want to get ready for the future,” Nanda added. Successful inroads in new markets could drive the national share above the current eleven per cent.

Nanda said the company will look at a voluntary retirement scheme. “We are looking at opportunities to right size. Timing and scale I won’t be able to share now. But 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 first eleven months of the year (higher than industry’s 17 per cent growth) and profit has surged over 54 per cent to Rs 101 crore in 9 months of FY17. Volume growth has helped revenue increase 19 per cent to Rs 3,123 crore. Several block deals have happened recently in the company’s stock where ace investor Rakesh Jhunjhunwala holds about nine per cent stake. Brokerages have revised their target price upwards and almost every analyst tracking the stock is giving a ‘Buy’ or ‘Hold’ call. Tractor brings 80 per cent of the revenue while the rest comes from construction equipment and railway division.