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Escorts: Feb auto gross sales a constructive shock, demand momentum sturdy; anticipate value hikes in coming quarter

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Key highlights

  • The demand is strong. We will look at price increases in the coming quarter due to higher commodity prices
  • The prices of raw materials have continued to rise, and the industry has usually passed on cost increases
  • Have a good backlog for exports and increase capacity to meet demand over the next 2 years

Car sales volumes were largely strong in February 2021, with Escort and TVS motor sales volumes being positively surprised. In a research report, Motilal Oswal said tractor sales have been strong as supply-side issues have been largely addressed and a larger Rabi acreage with lower inventory levels could support wholesaling in the coming months. The growth dynamic for tractors, passenger cars, three-wheelers and two-wheelers was in the inline area, while the growth dynamic for commercial vehicles was below expectations.

Escorts reported a positive surprise in car sales in February 2021, with volume growth of just over 30% year over year. In an exclusive interview with ET NOW, Bharat Madan, CFO of the group, Escorts said: “The demand is strong, the growth momentum will be there in the next few months, the cash flows in the country are strong, after June it will depend on how the economy turns out Monsoons developed. ” Commodity prices have continued to rise and the industry has typically passed cost increases on. The company had raised its prices in the last quarter that would weather inflationary pressures on the commodity side by December. Management will consider price increases in the coming quarter due to higher commodity prices. The company is already building capacity and with the capacity increase they should be able to meet demand for the next 2 years, Madan added.

During the third quarter results, management determined that demand for tractors was positive in all markets. With a strong Rabi season, the outlook for the fourth quarter is very good. The farm ecosystem indicators are positive and therefore growth should continue. The problems in the supply chain persisted until mid-December but were largely resolved. The export order book is strong, but the company is unable to meet demand due to capacity constraints. FY22 will be stronger than FY21 as E-Kubota sees a certain volume contribution. The aim is to increase exports by 3 to 4 times over the next few years. Expect commodity-related cost inflation to have some impact, but plan for further price increases in the early first quarter of fiscal 22. Mix-related tailwinds would normalize. Lower variable marketing costs and certain fixed costs would return. The company is investing in existing processing equipment, preparing the supply chain and planning to expand capacity to 12,000 to 13,000 units per month by the middle of fiscal year 22.

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