Escorts Limited Q1 FY23 Earnings Conference Call Insights

Key highlights from Escorts Limited (ESCORTS) Q1 FY23 Earnings Concall

Management Update:

• ESCORTS stated steep inflation in commodity prices and unfavorable product mix adversely impacted operating profit in 1Q23.

Q&A Highlights:

• Amyn Pirani of J.P. Morgan asked about the drivers of underperformance in growth considering industry grew by 22% and ESCORTS at 4%. Shenu Agarwal President replied that it’s due to unprecedented inflationary pressures since Nov. 2020. ESCORTS expects that in a few months from now, there will be a turnaround in market share.

• Amyn Pirani with J.P. Morgan asked about any update on the expectation for tractor industry growth for FY23. Shenu Agarwal President answered that right now the expectation is that the tractor industry for FY23 should be in low to mid-single digit level growth from last year.

• Gunjan from Bank of America asked about the reason for margin decline of 5%. Shenu Agarwal President answered that the profit decline sequentially has come from inflation, which is the key reason. ESCORTS didn’t expect the inflation to be very high in 1Q23, but commodity prices went up in March and April beyond expectation.

• Gunjan from Bank of America also enquired if the company took any price increases. Shenu Agarwal President replied that the company took one price increase in 1Q23 of about 2%. However added that the inflation was much more than that.

• Chirag Jain of DAM Capital asked about the channel inventory for ESCORTS and the industry. Shenu Agarwal President answered that the company is still within the range of about a month of channel inventory between 27, 28 to about 35 days.  The company believes the competition is a couple of weeks more than that.

• Mitul Shah with Reliance Securities asked that on construction equipment side, what are the stable margin expectation and the levers for that going forward. Shenu Agarwal President said that in construction, ESCORTS participate in cranes, compactor, and backhoe loaders. So overall all the businesses were affected by inflation, but the impact is not as much as in tractor business.

• Mihir Jhaveri of Avendus Capital asked if margins would remain in current range for some time before any material gains in coming quarters. Bharat Madan CFO said it will depend on how the commodities market play going forward. Next two quarter look challenging, so 4Q23 will be the period when normalcy could be coming back.