Escorts Kubota Ltd
NSE:ESCORTS
Earnings Call Analysis
Q3-2024 Analysis
Escorts Kubota Ltd
Escorts Kubota Limited painted a picture of mixed results in its third-quarter financials, with operating revenue modestly up by 2.5% year-over-year, totaling INR 2,320.4 crores. However, this was overshadowed by a 7.2% decline in tractor volumes. Notably, the construction equipment division experienced an impressive hike with volumes climbing 48.9%, and the railway equipment segment saw revenues dip by 17.8%. Despite mixed volumes, the company's profitability flourished, with EBITDA surging by a noteworthy 64.3% to INR 312.7 crores, thanks to better price realization, effective cost control, and easing commodity prices.
The agricultural machinery sector faced headwinds, experiencing a 4.9% year-over-year sales drop amid erratic weather which impinged on the crop cycle. Despite these natural obstacles, Escorts Kubota Limited's domestic sales only declined by 5.9%, and they maintained a resilient market share of 10.5%. The export market contracted more substantially by 27.2%, yet the company saw a silver lining as 47% of its export volume now hailed from the expanding Kubota Global Network. Looking ahead, the company is cautiously optimistic, expecting a rebound in demand during the harvest period, albeit with an anticipated 6-7% annual industry contraction.
The growth narrative for Escorts Kubota was quite strong in the construction equipment segment, where all product categories saw growth of approximately 30%, with some sectors like cranes and compactors expanding by nearly half. Record-setting volumes of 1,800 machines in Q3 amounted to a stellar 49% increase year-over-year. This sector's revenue ascended by 49.3%, hitting INR 457.2 crores, backed by greater operational efficiency and a more lucrative product mix. Encouraged by government focus on faster project execution and innovation adoption, the company anticipates the construction equipment sector's buoyancy to persist.
The railway equipment division experienced a revenue slide, penciling in INR 205 crores in Q3, a 17.8% decline. Despite this, profit margins expanded significantly, the EBIT margin broadening by 532 basis points to 18.4%. This improvement was attributed to a better product mix. With a healthy order book exceeding INR 900 crores as of the quarter's end, the company remains committed to broadening its product offerings, signaling confidence in future revenue streams.
Escorts Kubota's financial health over the past nine months is undeniably robust, with historical highs in revenue, EBITDA, and net profit margins. Although the tractor volumes dipped by 4%, the company managed an 8.6% increase in operating revenue and an astonishing 88.6% leap in net profit. The company's performance underscores its resilience and adept management amid sector-specific challenges and uncertain market conditions. Investors may find comfort in the company's ability to navigate adversity, positioning it as a potentially stable investment in a volatile agricultural market landscape.
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Ladies and gentlemen, good day, and welcome to the Escorts Kubota Limited Q3 FY '24 Earnings Conference Call hosted by Batlivala & Karani Securities India Private Limited. [Operator Instructions] Please note that this conference is being recorded.
I now hand the conference over to Mr. Annamalai Jayaraj from Batlivala & Karani Securities. Thank you, and over to you, sir.
Thank you, Darwin. Good evening. On behalf of Batlivala & Karani Securities India Private Limited, I welcome you all for Escorts Kubota Limited Q3 FY '24 results earnings conference call. I also take this opportunity to welcome the management team from Escorts Kubota Limited.
Today, we have with us Mr. Bharat Madan, Whole-Time Director and Chief Financial Officer; Mr. Neeraj Mehra, Chief Officer Agri Machinery Business Division Domestic team; Mr. Sanjeev Bajaj, Chief Officer, Executive Construction Equipment Business Division; Mr. Ankur Dev, Chief Officer, Railway Equipment Business Division; Mr. Sanjeev Garg, Head Finance and Tax; and Mr. Prateek Singhal, Investor Relations & ESG at Escorts Kubota Limited. We will start the call with brief opening remarks from the management, followed by an interactive Q&A session.
Before we start, I would like to add that some of the statements that the company makes in today's call will be forward-looking in nature and are subjected to risks as outlined in Annual reports and the investor releases of the company.
At this point, I would request management to make the opening remarks.
Thank you, Mr. Jayaraj. Good evening, everyone, and thank you all for joining us today. Few highlights of company's stand-alone performance for third quarter ended December '23 are as follows: operating revenue at INR 2,320.4 crores, up 2.5% year-on-year. Tractor volume at 25,999 units, down to 7.2% year-on-year, highest ever quarterly construction equipment volume at 1,800 units, up 48.9% Y-o-Y. Railway equipment revenue at INR 205 crores, down 17.8% year-on-year.
EBITDA for the quarter ended December '23, up by 64.3% came at INR 312.7 crores as against INR 190.3 crores Y-o-Y. EBITDA margin at Q3 stands at 13.5%, up by 507 basis points year-on-year, mainly led by improved realization effective cost control and softening in commodity price.
Net profit PAT up by 48.8% to INR 277.3 crores as against INR 186.4 crores year-on-year. Few financial highlights for 9 months ended December '23 are as follows: operating revenue at INR 6,694.3 crores, up 8.6% year-on-year. Tractor volume at 74,605 units, down 4% Y-o-Y, highest ever construction equipment volume at 4,750 units, up 53.6% year-on-year. Highest ever railway equipment revenue at INR 737.1 crores, up 22% year-on-year.
Highest-ever EBITDA at INR 902.9 crores, up 65.8% year-on-year. EBITDA margin at 13.5%, up 465 basis points year-on-year. Highest ever net profit in 9 months, INR 795.1 crores, up 88.6% year-on-year. Net profit margin at 11.9%, up 504 basis points year-on-year. This is our best ever 9 months financial performance so far.
Moving on to the segmental business performance. Starting with the Agri Machinery business. During the quarter ended December '23, the domestic tractor industry experienced 4.9% decline in sales with 2.35 lakh tractors sold compared to 2.47 lakh in the corresponding quarter. This decrease was primarily due to erratic and efficient rain parts, resulting in delayed crop harvest and lower Rabi sowing. Our domestic sales were down by 5.9% to 24,628 tractors in Q3 FY '24 as against 26,181 in the previous year. Our market share stands at 10.5% at the end of Q3 FY '24.
In Q3 FY '24, the domestic sales -- export industry saw a 27.2% decrease to 21,300 tractors as compared to 29,300 tractors in the corresponding quarter. Our export volume declined by 25.7% to 1,371 tractors as compared to 1,844 tractors in the corresponding quarter, resulting in a market share of 6.4% in the export market. Now [ it props ] 47% of our total export volume in the -- come from the Kubota Global Network in the quarter ended December '23.
Revenue for the segment came at INR 1,658.3 crores, down from INR 1,708 crores in the same quarter last year. The EBIT margin for the Agri Machinery business increased by 550 basis points to 13.8% as compared to 8.3% in the previous year's corresponding quarter. These improvements were driven by softening in the commodity price, improved price realization and effective cost control measures.
As we move towards the harvest period, we have shifted a rise in the demand in the upcoming months as agriculture activity improve overall. On a full year basis, we expect FY '24 Indian domestic tractor industry to degrow at around 6% to 7% as compared to record industry volume of FY '23.
Coming on to the Construction Equipment business, in Q3, our served industry segment for backhoe loader, pick-and-carry cranes and compactors experienced significant growth of around roughly 30-odd percent, led by crane industry 47% growth compactor 49% and backhoe loader industry up by 25%.
Our total volume of manufactured and traded product reach all-time high in the quarter of around 1,800 machines, a 49% increase from the previous year. Construction Equipment segment revenue came at INR 457.2 crores, up 49.3% as compared to INR 306.1 crores in the corresponding quarter. EBIT margin for the division improved by 607 basis points to 8.3% as against 2.2% in the corresponding quarter, led by operating leverage, improved product mix and better realization.
The construction equipment industry strong performance across all segments attributed to increased infrastructure development project nationwide with the governance focus on faster project execution and adoption of advanced technology and sustainable practice, we anticipate continued growth momentum in the construction equipment industry.
Coming on to the railway division. Revenue for the third quarter came at INR 205 crores as against INR 249.3 crores in the corresponding quarter. The EBIT margin for the quarter ended December '23 improved by 532 basis points to 18.4% compared to 13.1% in the same period last year, driven by more favorable product mix.
Looking ahead, we remain committed to expanding and diversifying our product line. At the end of December '23, the order book for the division stands at more than INR 900 crores plus.
Now I will request the moderator to open the floor for Q&A.
[Operator Instructions] The first question is from the line of Gunjan Prithyani from Bank of America.
Just reconfirming that in the opening remarks, did you call out minus 6% to 7% decline for the tractor industry in F '24?
This is Neeraj Mehra. That's correct. That's a minus 6% to 7% for the entire year.
And then if I use that as a base, you are basically looking at 12%, 13% -- I mean almost nearly low-teen decline in the quarter 4. Can you just share some insights on what's really that we're seeing on the ground? Is this inventory correction? Is it genuine weakness in demand? And how long do we see this persisting?
Yes. So you're right. Quarter 4, we're looking at about 12% to 13% decline vis-a-vis last year. So overall, the year would end at about between 890, 895 units, and this is on the high base. Last year was a very high base, the highest ever in the tractor industry. So if we end at about 890 or 895 for the current year, that would still be our second highest in the history of the tractor industry.
Now one of the key reasons for this decline primarily is, as already mentioned in the opening remarks, it's basically erratic and deficient rainfall in the Western and the Southern part of the country. So the tractor industry has a direct correlation to the rainfall, that is one of the reasons, primary reasons basically.
And another reason is that the commercial segment, primarily when I say commercial, I'm talking of the bricking industry and the mining segment, that was a bit slow. So these 2 are primarily the reasons for the decline.
And just 2 follow-ups on that because if I look at the water reservoir levels, we are also quite meaningfully down from what typically has been the trend for the last couple of years. That really doesn't give confidence of things improving meaningful or how should I read beyond quarter 4?
I get quarter 4 is a demanding base and some of these issues around commercial segment are reflected in CV industry as well. But beyond quarter 4, is water reservoir level concern? Or how are you approaching F '25? If you can share more color around that?
So see, it's a bit premature to comment on financial year '25 as of now because I've already said that tractor industry has a direct correlation to the rainfall. So until we get a meaningful indication on how the rainfall or the monsoons will be next year, it's a bit difficult. We can get to it around March or early April or how financial year '25 would look.
Okay. And inventory levels in the channel, is that something that we should be worried about? It's at the high level. Any comments there?
So from EKL's perspective, actually, not to worry on the inventory levels. We are currently at about 35 to 38 days of inventory levels. So we have been very cautious on this aspect over the last 9 months. So our inventory levels are pretty much in control.
Okay. And the second question from my side is on the export. Now clearly, the expectations there were of a significant ramp up with the Kubota network. And what I see is almost 20%, 25% decline in the volume numbers even when the volumes are quite small right now in context of what we are looking over the next 3, 5 years. So how should we look at the ramp-up of the export business? What -- is it the merger that we are awaiting to close? Or is there anything to call out on exports?
So Gunjan on export, like we mentioned in the last call also, was export will really pick up for Kubota network once the product development is ready -- which is what the Kubota will need. But if you look at overall export still the share of Kubota export actually is going up even the total volume, whatever volume we have even now, I think we're almost 40% -- 40%, 45% right now, which [ is ] already touched.
And normally, if you look at the markets, both U.S. and Europe are going through downward rate on the tractor industry perspective. So we're seeing some pressure there, but still Kubota actually has been buying these tractors. And there are some new products, which we are in the process of introducing which will happen in FY '25, and that will likely help us in taking care of more volumes for Kubota network too. So I think long-term trend, obviously, you look at mid- to long-term trend, obviously, is positive on export. There is a lot of lineup which is happening now on the [ rural ] development side. But obviously, if you look at the short-term perspective, there are obviously some concerns the overall industry is down to 30% roughly.
Okay. Got it. I join back the queue.
The next question is from the line of Raghunandhan N. L. from Nuvama Research.
And congratulations on good margin performance. Sir, firstly, following on the tractor demand. There are triggers like the timing of the chaitra navratra festive period [ IMD ] and Skymet, both have initially indicated expectations of normal to above normal monsoon, and there could also be government support in terms of favorable policies. So given these factors, would you expect that the trend would be positive for FY '25 on the tractor side? And also, you will have a low base of INR 890,000 to work with?
Thank you for the question, Raghu. So first of all, INR 890 is not a low base. It's a pretty decent base. Secondly, what all factors that you have mentioned if all those factors come into play positively, then of course, we can see a positive upset.
Got it, sir. And second question was on railways. On railways part, I mean, 9 months growth is strong and even last 2 years, growth was strong. For this quarter, there was a decline in Y-o-Y. Would you consider it as temporary, given that there is an order book of INR 900 crores would things improve going forward? If you can talk a little about what happened this quarter and the outlook ahead?
Prateek this side. So I believe you are right, as you are saying, it is a temporary phenomenon. And the -- as you know, the major revenue for our business comes from Indian Railways, and the supply happens based on the schedule, which is received from them. So it is basically the low because of the supply schedule for quarter 3, which we were having.
And if I talk about the order book, we have -- then order intake of more than 40%, 50% higher than what we had in Q1 and Q2. So it is a temporary thing, and we will continue our growth momentum in the coming periods also.
Got it, sir. And then lastly, to Bharat sir, in terms of company's progress towards Vision 2028, can you highlight status of certain key areas in terms of, a, amalgamation of Kubota Agri, would you expect it to happen in the next 2, 3 months, b, in terms of exports of component, would that start off we'll say, next 3 to 6 months?
Yes Raghu, on the merger front, I can give you an update. So obviously, all the approvals are in place, so the matters are pending with NCLT. So I think it's up to total NCLT when the final order comes. So as you mentioned, it can happen in the next 2, 3 months. So we're expecting it should happen within that time frame. So on the component export side, yes, I mean -- like you've mentioned last time also, so the team has been now working on this area, and they already shortlisted some of the components is they will be looking at exporting.
And as we mentioned in the manufacturing JV in Escorts Kubota, there is already exports happening to U.S. and Thailand for the component. So obviously, those business will come to us, it's almost a decent business right now it's INR 100 crores, INR 150 crores component are exported from EKI and I think [ KI ] is also exporting some component to Thailand, another [ INR 60 crores, INR 70 ] crores.
So it's a decent side of business, and there is an intent to grow that business further because there's a lot of export, which they're expecting will happen from India. So definitely, the team will work on that. So they are already now started contacting the suppliers and then building of the portfolio. But there's a good wish from Kubota side you need to shift part of the business from a sourcing business from other countries to India.
The next question is from the line of Hitesh Goel from CLSA.
Sir, this question was on [ TERM V ] norms. So basically, you had indicated that this will get extended beyond April '24 for the less than 50 HP segment. So what is the indication you're getting from the government? Because I think one of the concall you have talked about September '25 as the date for these norms?
Yes. So there is a formal communication now. So these have been actually extended to 1st April 2026.
Okay, okay. Great.
So no impact for the next fiscal at least.
The next question is from the line of Mitul Shah from DAM Capital.
Sir, first question is on inventory. So we are hearing industry-wide inventory level of around 45 to 50 days, primarily with higher inventory at leader. So we are seeing our inventory 35 days. So such a huge deviation, do we plan to increase the inventory in March ahead of the Chaitra Navratra? And how do you see that inventory situation for industry because that is Chaitra Navratra starting in second week. So would that be filled up in March, except to boost the March number or it will happen only in April?
So I mentioned in my earlier comments that our inventory levels are currently between 35 to 37 days, right? So for the current fiscal, we do not intend to increase our inventory, and we intend to continue with this inventory as we go forward with a lot of thought we have worked on this inventory, and we intend to continue as we get into the next season.
Okay. Sir, second question on export side again, nearly 47% of the sales now coming from Kubota channel. And without Kubota, we were doing about 400, 500 kind of a number per month -- and even after getting support from Kubota, its number is not changing. So sizable deviations of how the strategy is working in terms of after this tie-up and Kubota channel. Still, we are selling Farmtrac, Powertrac, EKL how the branding on a broader basis, the strategy change -- any strategy change after this tie-up?
Yes. So Mitul, this is Bharat Madan. So there is a strategy paper, which has been rolled out. So obviously, there are markets where both the brands are present today, we got Kubota network as well as our Farmtrac network. And there are countries, where there's only Kubota network present and we are not there.
Now there are countries where only Farmtrac is present and Kubota is not there. So obviously, where there is no overlap, there's not an issue. So both brands will continue independently. But where there are overlaps in the same country, both brands are operating. So the idea is to integrate the channel, which is why you've seen some impact coming on the numbers also, where there's some time to really integrate the channel.
So there are some confusion with the distributors for both which should now brand will operate with whom. But obviously, now the idea is whosever is the best distributor, they will operate, there is FT distributor, then we'll continue with FT distributor, Kubota network which is strong, we'll continue with Kubota network, but the same distributor will sell both the brands. So the brand will continue in both -- all markets. So we're not discontinuing any plan from the company side. And whosever is a stronger channel partner, we'll continue with that channel quarter and the other partner will be discontinued.
By when we expect completion of this vendor, this dealer consolidation and any meaningful ramp-up in export volume?
So hopefully, within next year, they should get completed. We're already started working on this, but they're going market-to-market. We have Kubota I think the total market, we are present in more than 60, 70 countries, and Kubota is even more than that. So obviously, wherever there are overlaps, they are addressing one by one on these markets. But we expect, I think, within next 1 year, the entire integration will happen.
The next question is from the line of Mumuksh Mandlesha from Anand Rathi.
And congratulation healthy margins in Agri segment. Sir, can you talk more about the vision plan related to new products, which we plan to launch for domestic and exports market. So just to get more sense of what kind of products we are looking, which segments we're looking? Can you help us understand more on this?
See, sir in the midterm business plan, we have identified the white spaces, both individually because we said we'll continue with all 3 brands, Powertrac, Farmtrac and Kubota and there are white spaces in each brand. So we're not present in across the segment in all the 3 brands across all horsepower segments and all applications.
So idea is to fill those white spaces. So the product lineup, obviously will include wherever the gaps. So we intend to bridge those gaps. So there's a plan on the product development side in the next 4 years, how those product will really fill that gap because if we are looking at increasing market share, so obviously, the entire universe will seem covered. So that has been the plan. And the RA team and product development team is working along with the sales team on the development of these products. And we'll see the lineup starting coming in from next year. The new product launches will start happening from next year itself.
And something similar, what's the plan for exports market, what kind of products we are looking, sir to particularly develop for the Kubota markets?
So one, obviously, their machine on there are advanced. So it's not something that we sell in India, so that is obviously 1 requirement. Second, the quality standards, what -- if you sell under Kubota brand are quite high and stringent because their positioning is totally different. So that means some changes are required. Even in the existing portfolio, it's not export, obviously for Kubota brand or co-branded products, some changes are being done to really match the quality standards. So those things are there. So essentially, see, if you look at the exports from India, essentially, it's -- we always sub-75 HP segment, is really sells in India. The maximum export we are seeing happening is in sub-40 HP segment, especially if you look at the European market, 30 segment, 30-HP segment is the biggest export segment, which is now [ happening 70 ] -- almost 13,000 tractors got exported last year under this segment.
So this is one segment which is a priority and not just Escorts. I think there are all other manufacturers also targeting this segment now. So it's becoming quite competitive. But this is the segment where the product gaps are being addressed as a first priority, which will cater to the European market. And then as you go to the North America or Central American market, then it will go to the higher HP segment, now it will get addressed.
Got it, sir. And just any update on the engine plant for the localization of the JV company?
So engine plant will come up when we go ahead with the greenfield facility, which is the plan. So but earlier engine line may not come up immediately. It may cover in second phase. The first phase we intend to look at for setting up the tractor capacity, which should be doubled now. And post that, then we'll start off the engine line. But right now, I think it's still in the discussion stage. So the timing et cetera, we don't know which one will happen, which can also happen together, it can happen in phases.
So we'll have to come back but we're not really yet submitted the final plant to the both -- both the Kubota Board or the lower Board. But obviously, the land acquisition plan has been got the go ahead from both the boards. So I think we are starting this process from this month. So hopefully, next 3, 4 months, we should be able to close that.
Got it, sir. Just lastly, on the agri margin improvement which you saw this quarter. Has there been any price hike or a lower input cost benefit?
Yes. So both were there. So if you recall in the last quarter, in September, we had taken a price increase. So we didn't get the full benefit last quarter. So that impact obviously has come fully in this quarter. And there's also been some deflation benefit which you got from the commodity prices in this quarter in tractor business. So that is also reflected as part of the margin.
The next question is from the line of Jinesh Gandhi from Ambit Capital.
Continuing on the previous question. So on the commodity side, have we seen a large part of the benefit [indiscernible] ratio or you're expecting further benefits in coming quarters?
Actually, now we're seeing some tightening that started happening. Actually, in construction equipment, we saw some inflationary pressure in last quarter. So that's why you see the margin in construction equipment is slightly down. So we took the price increase there in January to offset that inflation.
And in tractors, again, we are hearing there is some possible [ layoff ] inflation coming in Q4 even though the quantum may not be high, but those [indiscernible] numbers still need to be finalized. But we don't see a significant deflation benefit now coming in. I think the softness in commodity is already been, I think, more or less or even if it remains taken, I think we could, but otherwise, they see a marginal increase.
Okay, okay, okay. And effectively, the impact which we have seen in construction equipment on margin, usually 3Q is materially stronger quarter than second quarter predominantly because of commodity price increase or there is something else there?
So it's a mix of the product mix, obviously, which is also one impact and partly of the commodity prices. So it's a combination of both.
Got it. And lastly, continuing on the construction equipment, we are expecting this momentum to continue. However, if we go by outlook, which I mean, industry have given, which also is reasonable contribution coming from construction end markets and the usual weakness seen in construction activity post election, do you expect reasonably good growth or this -- your growth percentages will moderate substantially in FY '25?
Neeraj this side. I'll respond to it. So in the short term, we see that there might be a little bit of uncertainty when code of conduct comes in at the time of election, which is early part of Q1 of next year. And also we can anticipate some caution that whether the BS-V kicks in January next year. So these are the 2 factors which we need to keep in mind.
But otherwise, if we look at overall demand and the speed of the projects, and the kind of activation of these equipments, I think the average demand will continue like what it has been in this year other than these 2 factors, which can be a little bit of disruption next year.
The next question is from the line of Pramod Amthe from InCred Equities.
So first question is with regard to the new emission norms, which I think got implemented for 50 HP tractors, what's been the experience there at the consumer level?
So the TERM IV norms, which got implemented last year, there has been an industry shift. So basically, there has been a movement downwards into the 41 to 50 HP segment.
So normally, the industry size in this segment is about 7%, which has actually now come down to 2%. So industry for this particular segment, will be around 20,000 to 22,000 units for the entire. So there's been a drop of about 30,000 units for the first 9 months.
And variable -- if the industry takes the entire price hike required to pass on the -- in the industries or there is a challenge?
So the entire price has been passed on.
Okay. And second one is with regard to the tractor industry outlook, which you alluded to. Compared to a single-digit decline in the December quarter, you were already talking about a double-digit decline. Does it make a substantial heavy lifting from the government or other agencies to do a revival post-February?
See, as I had mentioned earlier, the linkage to the tractor industry is primarily on account of the monsoons. So we'll need to see how the monsoons pan out for the next fiscal year. That is a primary thing. The government's focus remains there. Also, it will depend on when the elections happen -- in the quarter 1, if the elections are announced for the period April or May, then it will impact the industry because normally, the farming community gets involved in these kinds of elections. So that is the scenario.
And sir, the second question with regards to the railways, how do you read the big CapEx announcement in railways -- which part of -- some parts or other countries will help you because I have already -- there was a plan announced for this year and the revenue plans announced for the next 4 to 5 years. If you can give more detail on why I should go with that segment?
Yes. Ankur Dev this side. As you know that we are basically into the business of supplying components for various kind of rolling stock, which is being manufactured in India. And if we talk about majorly, if we divide this into 2 segments, the first one is the freight wagons.
And the government has already given long-term orders for manufacturing of freight wagons to various wagon builders, and there has been a, I would say, a continuous good tracking in this business. And wagon manufacturing is -- is increasing month-on-month. And I think this momentum will continue as they are laying out the dedicated freight quarter also to accommodate this newly manufactured freight wagon.
If I talk about the passenger segment, in this, we have been hearing there is a lot of traction in terms of Vande Bharat coaches. So I believe the rolling stock manufacturing will be having a good growth in the coming years. And with that, we will -- we are also developing a lot of new components for these Vande Bharat kind of passenger coaches. So I believe we will be having a good growth in terms of industry, and we should also be getting a good benefit out of that.
The next question is from the line of Abhishek from Dolat Capital.
Sir, what was the 9-month revenue and EBITDA of Kubota Agri Machinery and Escorts Kubota India Private Limited?
So we don't have the ready number, whether it's a joint venture, which gets consolidated. So we don't do line-by-line consolidation there. But like I said, roughly it's INR 500 crores average revenue which comes each quarter. So last quarter, that's a season quarter, it will be about INR 600 crores revenue.
Overall, EBITDA is positive. So if you look at consolidated numbers for manufacturing and sale JV combined, they were positive EBITDA, but obviously, EBITDA numbers are lower than what Escorts has.
Okay. So EBITDA -- in the last year EBITDA was in the range of around 1% or 2%. So it has moved up because of the localizations?
No. So they was a very good traction on the harvesters and transplanter business last quarter. So we got a decent margin in the sales company on that account. So overall, combined, if you look at integrated EBITDA margin earning for both manufacturing and sales JV are roughly I think about 5% to 6% now.
So it's improving, which is a positive sign. And there's an idea -- where ultimately the idea is to take it to the level, where Escorts is post-merger. And then the that's the direction on which we'll be working.
Okay. And in export business, how is the geography mix in Europe and U.S. market?
So as I mentioned, both the markets are seeing a downtrend. So it's a degrowth. It's not just for us. I think globally, we are seeing that in Kubota seen that sort of degrowth now coming in the tractor with post COVID when the lockdown was there, there was lot of demand for the smaller tractor, which is what [indiscernible] had given this big boost to the small tractor segment in both these markets.
And now lockdown is open, we're seeing some traction is coming to demand, is slowing down. And then again, huge inflation, which has happened. That's another thing which is impacting the demand in this market. Plus, obviously, competition from other markets, with the players from India and Korea, which have become very. So that's another reason we're seeing some sort of finance lowness and the global numbers of Kubota. But that's the reason, which is the advantage, which is why Kubota wants to leverage Indian operation to use it as a sourcing base where they can compete in those market on cost front with the other players, the competitors. So that's why you see the good opportunity going forward for the next 2, 3 years, see good numbers coming in for 4 month.
So what is your target for the export mix by FY '26 or FY '27 in overall tractor volume?
So overall, we're looking at, at least getting to the #2 position in the exports. So today, we -- last year, we did only about 7,000, to 8,000 tractors in export. But looking at the potential, I think we nearly reached 20,000, 30,000 tractors in the next 2 to 3 years.
The next question is from the line of Pramod Kumar from UBS.
Before the question, just a clarification, sir, when you talk about the inventory numbers in terms of days, we are taking the last 3-month average? Or how -- what's the denominator what you're using, sir?
It's annual number.
Sorry, annual number, is it?
That's right.
Yes. Okay. Okay. And sir, on the Chaitra Navratri in April. If you can just help us understand how big is that in terms of seasonality for the industry and for yourself as to how much of the volumes come from that particular season? Because we understand Dussehra is a very large one for the industry in annual calendar. But just to provide a context as to how big this season could be, if you can just help us understand that?
So these Navratras compared to the Navratras in October-November season are relatively smaller. They're relatively smaller. Yes, they do have some impact, but they are relatively much lesser in terms of volume business compared to the Dussehra, Navratra and Diwali, Dhanteras period.
Okay. But is it fair to in that it would be more like half of what you typically see in the Navratra Dussehra season in October -- September, October? Or it's bigger than that?
It's slightly lesser than that.
Slightly less than that. And sir, on the network side, because compared to the market leader, if you can just help us understand what would be your network gap right now? And which are the regions where there is opportunity for you to expand your network, especially with the given soft portfolio, which you're trying to build with Kubota. What could be the network opportunity here in the domestic market?
See, in terms of the network, our current focus is actually the Western and the Southern markets. Primarily, it's the Western market because Western India, that is basically Gujarat and Maharashtra, they contribute about 20% to 21% of the total TIV. So our primary focus is on those markets.
In our stronger markets, our network is more or less in place. There are some actions related to restructuring, but in our stronger market, it's more or less in place. The focus -- primary focus going into the next year would be in the western part of the country and a bit in the southern part of the country.
And south, how much will be the gap sir? Is there also a meaningful gap between you and the other larger players in the region on the network side?
Yes, there is a gap, but honestly, south industry has shrunk over the last 18 months. It now actually contributes only 15% to 16% of the total all-India TIV. So our primary focus now after the northern markets is the western part of the country.
Fair. Understand. On the last question on the pricing environment because we do understand it's a pretty fragmented industry. There are a lot of smaller brands, which are powerful in certain regions. Any given small town has like 15 brands available nowadays in tractors, even in southern market, which is shrinking.
So how is the pricing discipline been for the last couple of months when demand has been weak? And how do you see that going forward, given the fact that the profitability of the industry is imminently pretty high. So how should one look at the pricing environment? Because it's not about only 2, 3 players holding the price line, but it's a pretty long list of industry participants. So how should one look at the pricing environment given that we're having this down cycle after a fairly long period of -- we have had a pretty good run for the last several years now. So how should one look at the pricing discipline going forward, sir?
See, so over a period of time, the pricing discipline has been maintained. So there is a slight change in the pricing, when the peak seasons come in, wherein all the manufacturers doll out certain discounts or certain schemes, customer schemes, and that is for a set period of time. So once that period is over, the discounts or the customer schemes are rolled back at a normal pricing level comes into play. So the pricing more or less is similar. It is different in different segments, but more or less across the major players, it is at a similar level.
Fair enough. Before I go, just a confirmation, our Vahan, there was some problem with the database, which you had highlighted earlier, is this still continuing? Or you see the Vahan data with the lag is now kind of getting -- reflecting the updated retail environment for tractor, sir?
So the Vahan data, the updated data, the last data which came in was for the December period and also for the YTD period. So it's corrected now. It's more or less in line.
We have the next question from the line of Kishore from JK Capital.
Yes. I had a question more around the long term in terms of where do you see the industry size stabilizing? Is it mostly penetrated in terms of new growth? And when will it move to a replacement cycle?
See, so we're looking at 6% to 8% CAGR over a long-term perspective. That will continue. Looking at the focus of the government and various other aspects, I think 6% to 8% CAGR should be a decent enough growth.
And for how long, sir, like do you see any saturation coming in at least in the let's say, next 5 to 10 years sort of a window? Or is it well beyond in your opinion?
So it's very difficult to comment, but not in the near future, not at all, no saturation at all.
Got it. Second question I had is on the equipment beyond your tractors, especially with your now Kubota getting amalgamated. How do you see that other equipment beyond like your transplanters, harvesters? How do you see that market evolving in the next, say, 3 to 5 years?
So implement market obviously has a good potential. So as we know India has the more tractor association, so mail from [ marginalization ] is still to happen. So it's only the basic implement which are getting used in India. So all the high-tech products are then will get introduced gradually. And we're seeing the growth happening like harvesting already 30% penetration has reached in this. So obviously, the earlier stages, where you need to fully have better implements and better attachments which will come.
So there's one segment which we think should continue to grow, I think, in future, even though -- like you said, tractor industry made a saturation finally some days. We don't know when that day will come, but that's where I think opportunity really exist, and for other equipment to come into play, which is why we're looking at most of the OEMs now going into that category.
Got it. And last thing is do you -- are you looking for any sort of external support from, let's say to government or any big levers which can help you sort of grow this pace a little faster in the longer term?
Well, I think in terms as board, as the government policies are [ farewell ] for the agriculture sector, and we think the same trend will continue. I mean the sectors in which we are operating infra and agri, I think both of the favorable sectors for any government irrespective of what governments comes to power.
But yes, of late, you've seen the support from government side in terms of like [indiscernible] outlay has come down. So saying the liquidity issues are coming up in the rural areas right now, which is why the last 1 year has seen some demand got impacted, not only across only tractor segment, even in another segment, we see that the rural market has some impact on the demand side.
But we expect that fairly will improve going forward, like the MSPs are going up now. So if the government is going up, so which is a favorable sign. I think from a government perspective, we think the policy will remain favorable as far as farmers are concerned.
Got it. And anything particular on the implement side. And with that, I will come back in the queue.
[Operator Instructions] The next question is from the line of Pramod Amthe from InCred Equities.
You had planned to -- or taken a permission to set up a NBFC, right? So in the context that recently there have been some instances of NPAs. Would you be going aggressively on this layout? Would you be setting up all by yourselves the channels? Or what's the plan on the tractor financing?
So the idea of setting up FT finance company was to make sure the customers are not lost to competition. So there are areas where we are seeing some sort of pressure, where the financing is an issue. So the idea of having this finance company is to supplement the main business, core business, which is in the agri side. So obviously, that's the objective.
So -- but at the same time, the company will operate independently. So the idea is not to really get into the NPAs and start getting into the whole quality of customers. So obviously, that aspect will also get addressed and will be taken care of. So I think it will be a good balance, which we intend to achieve.
And if you look at all captive finance companies, I think most of the OEMs are operating with roughly 30% penetration on the captive finance arms. So which is what I think we are also looking at going forward. It's not only 100% financing. The other financiers, who are already working with us, will continue to work with us. And wherever the financing is really available, that's not our target segment. The idea is to approach the customer end markets, where they are difficult in getting finance and there are good quality customers available. So that's a segment which we will really target in the finance company.
And any time lines, sir when you want to roll it out? And what penetration you will achieve this year or next year?
We just incorporate the finance company last month, and we intend to apply to RBI for license now in this month. So it takes, I think, some time 6 to 8 months for RBI to really come issue the license. And once we get that registration in place, till that time, obviously, the entire back-end action will be done. And hopefully, within next fiscal, we should be able to launch those company and start financing.
And the second one is the follow-up on this trend emission, there were also discussion to classify tractors, agri and non-agri and give a concession only for agri. Anything agreed by the government, how this concession will apply to non-agri tractors?
So there is nothing of that kind as of now. So all tractors are primarily from an agri perspective.
But the concession was sought with the thinking that the tractors are sold to agri. But as we know, there is a 30%, 40%, which goes to transport, right? Any thoughts there? Any conclusion.
See, like I said, the main purpose of tractor is to be used in agriculture application. Use in haulage or the other activities is the secondary use. It's not a primary use of the tractor. No one buys a tractor only to put for commercial activities. So the main purposes still remain agriculture, which is why the distinction hasn't been done by the government.
The next question is from the line of Pramod Kumar from UBS.
Most of the questions have been answered. But if you can just help us understand on the replacement cycle, given that we've been having both agri and infra doing very well. And normally, in subcycle, the tractor variant is also higher. So if we can just help us understand how do you see replacement cycle or by when do you expect replacement cycle to kick in a good way for the industry given the strong growth what you've seen in the last 3, 4 years?
So you see, replacement cycle of a tractor depends on the application, it's being used and also on the geography. So more developed markets actually and from an agri perspective, the replacement cycle varies between 5 to 8 years.
If a tractor is actually being used for both agri and commercial perspective, then the replacement reduces a bit. So it varies between 3 to 6 years or even 7 years. But a normal replacement for a natural tractor varies between 5 to 7 years on an average.
Ladies and gentlemen, we have no further questions. I would now like to hand the conference over to the management for closing comments. Over to you, sir.
Thank you, ladies and gentlemen, for being present on this call. For any feedback or queries, please feel to write us on investor.relations@escortskubota.com. Thank you very much, and have a good evening.
On behalf of Batlivala & Karani Securities, that concludes this conference. Thank you all for joining us. You may now disconnect your lines.