Escorts Kubota Ltd

NSE:ESCORTS

Q4-2025 Earnings Call

[Operator]

Ladies and gentlemen, good day, and welcome to the Escorts Kubota Limited Earnings Conference Call hosted by Emkay Global Financial Services Limited. Before we start, I would like to add that some of the statements made by the company in today's call will be forward-looking in nature and are subjected to risks as outlined in the annual report and investor releases of the company. [Operator Instructions] I now hand the conference over to Mr. Chirag Jain, Emkay Global Financial Services Limited. Thank you, and over to you.

[Chirag Jain, analyst]

Thank you, Navya. Good evening, everyone. On behalf of Emkay Global Financial Services, I would like to welcome you all to Escorts Kubota Limited Q4 and FY '25 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, Tractor Business Division; Mr. Sanjeev Bajaj, Chief Officer, Construction Equipment Business Division; Mr. Sanjeev Garg, Head, Finance and Tax; and Mr. Prateek Singhal, Investor Relations and ESG.

We will start the call with brief opening remarks from the management followed by the Q&A session. Over to you, sir.

[Unknown Executive]

Thank you, Chirag. Good evening, everyone, and thank you all for joining us today. Fiscal year 2025 has been a remarkable milestone for our company, making 80 years of spreading prosperity and impacting lives with a successful merger, starting operation in captive finance arm ETFL and our best ever financial performance with highest revenue and net profit. A few highlights of the company's stand-alone financial performance for the quarter ended March '25 are as follows: Operating revenue from continuing operation at INR 2,430.3 crores, up by 6.1% year-on-year. EBITDA at INR 292.9 crores, up by 0.7% year-on-year. EBITDA margin in Q4 now stands at 12.1%. PBT before exceptional items from continuing operation at INR 358.4 crores, up by 9.7% year-on-year.

During the quarter, there is an adverse impact of INR 27.1 crores on account of impairment of investment in Poland, our wholly-owned subsidiary and a joint venture company in Gujarat for small tractors. Net profit from continuing operation at INR 250.7 crores, up by 0.9% year-over-year. Net profit, including discontinued operation at INR 297.5 crores, up by 8.2% year-on-year. EPS stands at INR 27.05 as compared to INR 25.05 year-on-year. The Board has recommended final dividend of 180% for the fiscal year '25 equivalent to INR 10 per share with the interim dividend already paid, the total payout for FY '25 will be amount to INR 28 per share for the face value of INR 10 each, an increase of 56% as compared to previous year.

On the consolidated basis, company financial performance for the quarter ended March '25 is as follows. Revenue from continuing operations at INR 2,444.9 crores, up by 6.3% year-on-year. EBITDA at INR 287.6 crores with a margin of 11.8%. Net profit from continuing operations at INR 271.6 crores, up by 11.6% year-on-year. Net profit, including discontinued operations at INR 318.4 crores, up by 17.9% year-on-year.

Moving on to the segmental business performance, starting with the Agri Machinery business division. On the tractor business, in Q4 FY '25, the total tractor industry volume, domestic and export, was at 2.28 net tractors, up by 15.5% against corresponding quarter last year. Our total volume was at 26,633 tractors, up by 7.6% over corresponding quarter previous year. On the domestic front, the total industry in Q4 FY '25 was at 2 lakh tractors, by 17.3% as against corresponding quarter last year. Industry in North and Central region experienced a growth of 10-odd percent, whereas rest of the country saw a substantial growth of 25.1%. Our domestic tractor volumes stood at 24,801 tractors, up by 6% as compared to the corresponding quarter last year.

Looking ahead with favorable macroeconomic conditions such as good rabi harvest, higher crop prices and above-normal monsoon prediction this year, coupled with sufficient water levels in reservoir, we expect tractor industry to continue growing across various regions in the next [indiscernible]. On the export front, the tractor industry in Q4 FY '25 came at 27,500 tractors, up by 4% as against 26,500 tractors in the corresponding quarter. Our export volume came at 1,832 tractors, up by 36.6% as against 1,341 tractors in the corresponding quarter. During the quarter, sales to Kubota network account approximately 70% of the total export. Non-tractor revenue comprising our Agri Solution business, Engine business and Spare Parts business in Q4 FY '25 constituted 19% of the Agri Machinery segment revenue as against 18% in the corresponding quarter and 21% in the sequential quarter. Agri Machinery Products segment revenue was up by 11.1% to INR 1,974.8 crores as against INR 1,776.7 crores in the corresponding quarter. EBIT margin for Agri Machinery business division was at 11.4% as against 11.5% in the corresponding quarter. Coming on to the Construction Equipment business, in Q4 FY '25, served industry volume comprising cranes, backhoe loaders, mini excavators and compactors mix was down approximately 8% as against the corresponding quarter last year. This degrowth was primarily driven by the crane industry, which was down approximately 13% as compared to the corresponding quarter last year.

Our total volume in the CE business were at 1,719 machines as against 1,958 machines in the corresponding quarter. CE segment revenue came at INR 453.9 crores as against INR 505.8 crores in the corresponding quarter. EBIT margin for the quarter ended March '25 came at 9.1% as against 11% in the corresponding quarter, adversely impacted due to change in initial norms regulation. As our commitment to innovation and focusing on the introduction of the new products, during the year, we introduced [indiscernible] in the backhoe loader and Hydra segment, complying with the higher emission norms. Our latest backhoe loader product is engineered for the mass market in domestic and the international market. The new crane models meet customer demand for performance, safety and comfort in Nonindustrial Crane segment. The construction equipment industry is currently navigating challenges in retail demand, primarily due to cost escalation on account of changes in the emission regulation. However, as the government prioritized infrastructure development across various sectors and price stabilization following the liquidation of old emission inventory, we anticipate an uptick in the demand during the later half of FY '26. The Government of India has allocated INR 11.21 trillion for capital expenditure in this year budget. This is a significant portion designated for the development of roads, railways, port and urbanization initiatives.

Moving on to the Railway Equipments business division, that's a discontinued operation. Revenue for the quarter ended March '25 came at INR 256.5 crores as against INR 213.4 crores in the corresponding quarter. PBT for the quarter ended March '25 at INR 62.7 crores as against INR 35.6 crores in the corresponding quarter. Order book for the division at the end of March '25 stands at more than INR 900 crores. This order book, however, excludes BMBS order for the freight wagon, approximately INR 383 crores supply for which has been temporary on hold by RDSO. Now I will request the moderator to open the floor for the Q&A.

[Operator]

[Operator Instructions] The first question is from the line of Mumuksh Mandlesha from Anand Rathi Institutional Equities.

[Mumuksh Mandlesha, analyst]

Sir, firstly, on the tractor industry growth outlook for this year, and also, sir, how [indiscernible] we see the response for the new PROMAXX series? And going ahead, what are the focus area for the new launches?

[Neeraj Mehra, executive]

Good evening. This is Neeraj Mehra [indiscernible]. So the industry outlook is positive as it has been in the past couple of quarters. So we see a growth in the industry in the coming quarter as well as for the entire year. Coming to your second question on how the PROMAXX series is doing. So it's early days yet. We have yet to get into a peak season for PROMAXX, but the initial response is pretty good. And I believe you had a third part of your question also.

[Mumuksh Mandlesha, analyst]

What are new launches focused ahead sir, which are areas launches are focused, sir?

[Neeraj Mehra, executive]

So see, we have a launch in Powertrac, which is planned in the third quarter. That is primarily an entire series for the southern markets. And also, we have a product in Kubota in the mid segment, which is planned in quarter 2. So these are the visible product launches for the current fiscal.

[Mumuksh Mandlesha, analyst]

Got it, sir. Sir, how is the product development going for the exports market? Any update around that? And what are plans to enter the Europe market, sir?

[Unknown Executive]

So Mumuksh, we're already exporting to European market. As Prateek mentioned, I think even in the last quarter, the export growth has been quite good. [indiscernible] 36% growth, which has come, although the base is low. But 70% of the export has gone through Kubota network. So I think the export to Europe has started even though the market conditions are not really good, even as of now, I think, as we speak. But I think the numbers for us have started improving now.

[Mumuksh Mandlesha, analyst]

[indiscernible] outlook, sir, how do you see the growth for FY '26 for exports?

[Unknown Executive]

We are [indiscernible] 20%, 25% growth this year over last year on the export numbers.

[Mumuksh Mandlesha, analyst]

Got it, sir. Sir, any update on the greenfield plant in the UP, sir?

[Unknown Executive]

We're in touch with the UP government, I think they already completed the acquisition of land. So there are certain formalities we need to do internally, like there are some tests which we need to do for soil, water and topography, et cetera. So those things are happening right now as we speak. So hopefully, I think they have indicated. The UP Government [indiscernible] for us to go first. So I think once our internal processes are completed, I think we should go ahead with that.

[Mumuksh Mandlesha, analyst]

Sir, so time line -- FY '25 would be the time line, sir, for the -- broadly, sir -- that time should be for the plant, sir?

[Unknown Executive]

Sometime I think in second quarter, we expect formalities should be submitted, end of second quarter or beginning of third quarter, the acquisition of land will get completed.

[Mumuksh Mandlesha, analyst]

Got it, sir. Sir, how is the dealer inventory for the tractors, sir?

[Unknown Executive]

Is in the range of 4 to 5 weeks, all the brands put together.

[Mumuksh Mandlesha, analyst]

Got it. And sir, dealer network has seen expansion over the last few quarters. For the next year, how do you see the expansion, sir?

[Neeraj Mehra, executive]

This is Neeraj again. So the expansion is happening. Primarily, the expansion focus is different for the different brands. So for Powertrac, it's primarily in the Southern markets. For Farmtrac, it's more in the eastern side and the western side. And for Kubota, it is primarily in the northern and central part of the country. So that is the plan, and the white space coverage is happening as per the plan.

[Mumuksh Mandlesha, analyst]

Any target, sir. What network expansion we plan to do, sir?

[Neeraj Mehra, executive]

So it's not very feasible to give the exact numbers at this point of time, but the intent is to improve our white space coverage substantially in this fiscal year.

[Operator]

Next question is from the line of Chirag Jain from Emkay Global Financial Services Limited.

[Chirag Jain, analyst]

Sir, just wanted to get your sense, I mean, obviously, in the last con call, we did mention that we are largely done with the correction that we were supposed to do on the sales front and probably second half of this financial year, we were supposed to grow market share -- gain market share. So any update in terms of how things are likely to play out in terms of our market share within the tractor industry?

[Unknown Executive]

So Chirag, you're right to a certain extent. The inventory levels have been brought down to the level that we had aspired for. As regards to market share, as you see, the industry is growing exponentially in the southern part of the country. And EKL has traditionally been pretty weak over there. So our focus as we go forward is in the West and to a certain extent in the East, where the industry is growing. So the intent is, as we go forward, to be at par with the industry growth in these markets.

[Chirag Jain, analyst]

Understood. Understood. And I think over the medium term, we have been expecting a major increase in market share. Can you share some light over there as well -- over the next 2, 3 years, what kind of initiatives we are undertaking to improve the market share in the domestic market?

[Neeraj Mehra, executive]

So you see, one thing that -- good that has happened in the last fiscal year is that we have been able to grow market share, though marginally in our stronger markets. That was an area of concern over the last 4, 5 years, wherein in the previous calls also, I had mentioned that the focus primarily will be in the North and the Western part. So in our stronger markets, we have actually gained in the last fiscal year. Now for the next couple of years, the focus actually or the strategy is primarily twofold. One is how do we grow through the product side. In the 31 to 50 HP category, which contributes almost 90% of the total segment, we have already introduced PROMAXX.

And in the initial question, I missed out that the second phase of PROMAXX is also expected in the beginning of quarter 4. So Farmtrac will primarily grow on the basis of these complete product range that -- and the new product range that we have introduced. In terms of Powertrac and Kubota, the strategy primarily is twofold. One, on coverage improvement and secondly, introduction of products, especially in Powertrac for the southern markets and the paddy markets, which we intend to do early on in the third week of -- in the third quarter of this fiscal.

[Chirag Jain, analyst]

Okay. On the export front, you mentioned that we might grow at about 20%, 25% this financial year. Any thoughts on the component business because that was also supposed to start scaling up. So any update on that front as well? And also guidance if you want to share for the next 2, 3 years?

[Unknown Executive]

Yes. So there also, I think the work is happening. So this year also, the exports have been there, but it's not much. I think it's only about INR 100 crores-plus, which has been done this year. And next year, they are targeting to double this number. But I think it will take -- it's a slow start, but I think the work is happening there with all the suppliers and the Japanese team also continuously working on this with the Indian team. I'm sure that's a business which has good potential to grow. But whenever it happens, I think you'll see exponential growth maybe over the next 3, 4 years.

[Chirag Jain, analyst]

And just last question, and then I'll come back in the queue. In terms of profitability, how do we see, let's say, this financial year or at least, let's say, next 1 or 2 quarters considering various drivers?

[Unknown Executive]

I think overall, the trend will continue. I think the way you've seen for this year too, I think we expect the similar number should hold good and maybe some improvement we are working on. So over and above maybe 0.5% to 1% sort of improvement. So it depends on how the commodity prices move in the coming year and how the market reacts to that. So otherwise, broadly, it should be in the similar range. Obviously, in the certain new product category, we'll see some pressure on the margin initially and till the time the product stabilizes and we achieve volumes, then the margins will start improving there. So initial introductory prices will probably have some impact there. But overall, we don't expect it to be lower than this year, the next year.

[Operator]

Next question is from the line of Mitul Shah from DAM Capital.

[Mitul Shah, analyst]

Sir, first question again on market share. Seasonally, Q4 is very strong for our company. And generally, it has been roughly 100 to 150 basis improvement on a sequential basis. This time, it is a marginal improvement or it's not appearing so strong. So any specific reason apart from South has reported high growth in this quarter? And is it to do anything with this merger of Kubota as a combined entity, market share will not get that benefit, which we used to get during Q4?

[Neeraj Mehra, executive]

See, you actually asked the question and answered it also. So yes, what you're saying is correct. It's -- about South also, it's about -- a bit about Kubota merger also. It's also that the industry has grown in the Eastern part, where there have been certain dealer legacy issues in terms of capacity. So all these have, to a certain extent, resulted in the performance that we have shared for quarter 4.

[Mitul Shah, analyst]

And then second question on margin for tractor segment. Seasonally, it's a slightly weaker quarter compared to Q3, still margins are much stronger also for the leaders also. So any specific reason apart from commodity, are this sustainable or it was 1 quarter effect to some extent?

[Unknown Executive]

Yes. So there are 2, 3 reasons actually for this quarter to report better margin. One, in the last quarter, as you know, since we normally build up inventory in second quarter to cater to the high season volumes in Q3. So normally, Q3 margins for material cost is slightly higher, and that's almost 2% impact, which you can say. So if you normalize, which is what is reflected in the current margins also, the material cost this quarter is lower than last year. The numbers are lower. So that is one reason. Second, obviously, there's a softness in the commodity prices. So in this quarter also, we saw deflation coming in. So that benefit is also accrued in Q4. So that's also helping us in getting to the better margin.

[Mitul Shah, analyst]

So taking Q3, Q4 average is the right understanding, that would be the right method?

[Unknown Executive]

Yes, that's right. Everybody will look at [indiscernible]...

[Mitul Shah, analyst]

Okay. And sir, last question on construction equipment side. Despite there is a variation in the volume, margins have now stabilized around 9%, 10% or even 11% previous quarter. So going forward, do you see any further expansion with help of any synergy benefit coming from Kubota Global on this side with new products? Or we should assume around this level?

[Sanjeev Bajaj, executive]

Mitul, this is Sanjeev Bajaj. Mitul as per the margin is concerned, I think we don't expect too much upward jump from here. It will remain consistent for some more time until unless the demand from the market goes up, which is expected in the next 1 or 2 years. So probably we'll get the advantage of volumes and scale. But as of now, this level seems sustainable, but huge upward movement from here is not expected immediately.

[Mitul Shah, analyst]

Yes, sir. Sir, one thing on clarification. In initial remark on agri machinery, you highlighted something about non-tractor revenue or anything like that within the agri machinery components and spare parts and other revenue stream.

[Unknown Executive]

Yes, Mitul. So we mentioned about the non-tractor revenue comprising of Agri solution, engine business and service spare parts business in Q4 constitute 19% of the Agri Machinery segment revenue.

[Mitul Shah, analyst]

Yes, versus last time, 18%, right?

[Unknown Executive]

Yes.

[Operator]

Next question is from the line of Gunjan Prithyani from Bank of America.

[Gunjan Prithyani, analyst]

Just a few follow-ups. On the industry side, you mentioned positive growth. Usually, you do end up giving us some guidance for the year. If you can sort of share thoughts how positive, what are the underlying on-ground sentiment you're seeing? And also an update on Trem because we were expecting some easing there, right? But I don't think that anything has so far come through. So maybe just talk us through the regulatory emission as well.

[Neeraj Mehra, executive]

Gunjan, Neeraj again. So on the industry side, as I said, we're expecting a growth. So you can actually look at a mid- to high single-digit growth this year. So this is for sure that the industry is looking at the highest ever volume in the Indian tractor market this year. And if all things fall into place, we are probably looking at a 10 lakh number this year. It's quite possible because all the factors that impact the industry, the forecast for the rains have been good, the initial forecast and all the other factors, the government focus on agri, infra, everything is positive. So we are actually looking at the highest ever industry this fiscal year. Now your second question was regarding emission norms. Yes. So emission norms, so the earlier date was 1st April 2026. We do not see as of now, the norms getting implemented on that date as of now.

[Gunjan Prithyani, analyst]

Okay. Got it. But there is nothing officially out yet on that, right?

[Neeraj Mehra, executive]

Nothing, nothing official.

[Gunjan Prithyani, analyst]

Okay. And in this mid- to high single digit, is it fair to now assume that a lot of the product gaps, et cetera, being plugged, there should be market share gain on a fiscal year basis in fiscal '26?

[Neeraj Mehra, executive]

See, yes, to a certain extent, in Farmtrac to a very large extent, the gaps have been plugged. In Powertrac, as I have mentioned in my initial remarks also that we are looking at a launch of an entire series for the southern market, the paddy special series. So that, to a certain extent, again, will cover up a lot of gaps. On the Kubota side, the product range is not there. We are in the midst of introduction of a product in the key segment of the 45 HP category, 40 to 45 HP category. So once that gets introduced, the coverage of Kubota will also improve. So yes, all these will impact in the growth of market share.

But as I have again mentioned in my initial comments, with the industry growth looking this year, again, in the southern part of the country and in the eastern part, the ask is tough. But with the introduction of these products and certain measures on the coverage side, we hope to be at par with the industry or marginally better.

[Gunjan Prithyani, analyst]

Okay. Got it. And just moving to margin, maybe just like sort of two-part question there. One is when I look at the margin for the second half, roughly at about 11% EBIT margin for the Agri Machinery business. Now there is certainly going to be some of these issues that we faced post the consolidation of subsidiaries. There has been some cost synergies, et cetera. Shouldn't we be expecting a better EBIT margin in fiscal '26 from this 11% range? The comment that you made was it should be at pretty much the similar zone. I mean I would have expected some improvement there. So some -- any thoughts there?

[Bharat Madan, executive]

So Gunjan, actually, if you look -- obviously, we don't have this number separately mentioned in the public domain, but actually, the margin on the domestic business of Escorts Kubota, especially on the old brand, FT, PT et cetera, the margins have improved. But actually since in Kubota brand, most of the stuff is getting imported, and there, we got impact of the exchange also losses, which has come up because the rupee has depreciated. So there, the cost increases pressure has been there. So that has actually further impacted the margin.

So overall, the EKL standalone margin have actually improved this year compared to the last year. So going forward, I think it's difficult to predict how the things will look because the localization is still some time away. It's not happening immediately. And as I mentioned the product which Kubota is selling, there's still a lot of import content is there. So the next 2 years, we expect those margins will remain in a similar range. Though if we continue to work on the domestic margin for our products, so there will be some possibility of improvement there. But depending on how the exchange work out going forward on these products, so that can actually impact the margin adversely too. So that's why we're not really going very bullish on the margin front, maybe 0.5% here and there can happen.

[Gunjan Prithyani, analyst]

Just sir, last question on this import bit that you talk about Kubota. I mean this will change, basis your comments only, when the greenfield plant commissions, which is still a couple of years out. Isn't the alternative available to us that we use some of the engines that are there in the Escorts earlier plants, legacy plants. So is that substitution possible at all? Or we have to wait for greenfield to come?

[Bharat Madan, executive]

So obviously, this will not happen on their platform. They will not allow us to use the Escorts engine on their brand or their product platform. But like you mentioned, we are working on a hybrid structure where we'll be using our platform and selling it maybe under their brand name. So that's where the margins will start improving. We'll have a total local content in those models. But that, again, there are challenges around the emission norm where there's no clarity right now. So it's a confusion if norms come, whether I should work on the Trem III norms or we should work on Trem IV norms. So that's the issue, I think, which is coming up as we start working on the total product series now for Kubota based on Trem III norms and the norms undergo a change and the entire efforts will go waste.

And same thing if we start working on Trem IV and they don't come, then again, we'll have to restart again working on Trem II norms. Otherwise, the cost increase will make it unviable to sell. So there are some challenges we are facing on that front. But obviously, the strategy, as you mentioned, is what we are following also. But there, again, the lineup will some time come maybe after, say, 1.5, 2 years. So it's not really something which will come immediately. But after that comes, the Kubota brand will also have complete coverage like we have for our FT and PT names. But it's still, I think, some time away.

[Operator]

[Operator Instructions] We take the next question from the line of Raghunandhan from Nuvama Research.

[Raghunandhan N. L., analyst]

Firstly, to Bharat sir. Sir, on the margin side, how has been the trend in terms of commodity prices? What is the expectation for the next 3 to 6 months, given that there has been some increase of late? And second one to Neeraj, sir, one of your peers commented that there has been some reduction in the competition intensity. If you can talk about how it is -- how is the discounting trend? That will be very helpful.

[Bharat Madan, executive]

So Raghu, on commodity side, so last -- I think last year has been more or less flattish. So there's a few quarters, I think 2 quarters, some increase was there, then 2 quarters, we saw deflation. So net-net, I think it was a positive year only from a commodities perspective. So we're not seeing any major pressure on the commodity side right now. So I think it's 4 to 6 months, unless something really moves against us in the geopolitical scenarios, which we don't know right now and difficult to comment. Otherwise, it looks like the market will continue to be soft.

[Neeraj Mehra, executive]

So as regards to the market intensity, the intensity remains the same. Actually, the buildup in terms of intensity and discounts and customer schemes, it's primarily once a year when you get into the peak season of Navratra and Diwali. So everybody gets very aggressive there. Post that, the additional discounts or the customer schemes are rolled back. And that is precisely the case with us also. We are at the normal level of pricing and a normal level of discounts. So once we get into peak season, that would obviously change. So currently, we are at a pretty normal level of discounts and pricing.

[Raghunandhan N. L., analyst]

Got it, sir. One last question. On the construction equipment outlook for FY '26, given the emission norm changes, what is the kind of outlook expected for the served industry? And also, if you can throw some light on given the blended shifting from Trem III, Trem IV towards Trem V or CEV III, CEV IV towards CEV V, what is the kind of blended price increase that is expected? And how much price increase we have already taken?

[Sanjeev Bajaj, executive]

This is Sanjeev. So this changeover from BS-III, BS-IV to BS-V is already -- it has happened. So it was applicable from 1st of January. And whatever stocks industry is holding, most of these stocks are about to get liquidated. For us, the residual stock was over in the Q4 of last financial year itself and for many products and for large number of high-volume products, we have moved to BS-V already. And so this is one. The impact to the customer is -- has been to the range of about 10% for products which have moved from BS-III to BS-V and about 7% for products which have moved from BS-IV to BS-V.

All of that impact on the cost for the customer is not fully recovered. So we built that in the pricing. But it is -- since that mix of BS-IV and BS-V, both products are moving in the market by different manufacturers. So complete realization of that price increase is yet to happen. And since we are also entering into monsoon period a couple of months down the line, so my sense is that by end of August and then September when the new season starts, that is the time when full recovery of these price increases would happen. I hope I've answered. Raghu, if there is anything left, you can let me know.

[Raghunandhan N. L., analyst]

Got it, sir. No, that was comprehensive. So basically, the volume and margin, we should see it normalizing in the second half of the year?

[Sanjeev Bajaj, executive]

Yes. So from a volume perspective, this year, first half is expected to be impacted because of this BS-V changeover because 10% increase on one type of product and there are products which are 6% to 7% costlier for the customer. So it is definitely expected to impact the demand -- overall demand because the product viability for a customer is at a stake. But we also believe that with such high CapEx plans for the government this year, there will be fund flow, which will start going into the market into various projects, which are getting announced, but those fund flows are yet to happen. Once that happens on ground, then the demand which comes up will probably will be the balancer of that price increase and people will come back buying equipments again.

[Raghunandhan N. L., analyst]

Understood, sir. Very comprehensive. Just one follow-up to Bharat sir. Sir, over the next 2 years, there are various efforts you had earlier indicated in previous calls in terms of synergies, cost savings and how you could try and get the margins towards that 12%, 13% range. Just trying to understand how would your thought process be over the next 2 years on the margin part?

[Bharat Madan, executive]

Yes, Raghu, so I think it will be something similar. I think as you mentioned, though like just you mentioned, the major change will happen once we have this localization I think for Kubota products. So which is still 2 years away. I think until then, I think we will remain in this range only, maybe 11.5% to 13% sort of range. Unless the operating leverage play very well for us and the volumes shoot up.

[Operator]

Next question is from the line of Vikram Damani from Damani Family Office.

[Vikram Damani, analyst]

So given where we are today, what's the best estimate for the new plant starting date?

[Bharat Madan, executive]

So if we complete the land acquisition, Vikram this year, which is likely, I think, like you said, by end of second quarter or beginning of third quarter. So the work will start from next year. So it will take at least 3 years' time to go live on production there. So maybe end of FY '28 or '29 beginning is what we're looking at.

[Vikram Damani, analyst]

Okay. In an earlier call, you had indicated that our exports should ramp up to geographies like Mexico, Southeast Asia around now, maybe starting FY '26. Is there anything sort of moving on those -- along those lines?

[Bharat Madan, executive]

Mexico will start now. I think it's already started. The distributor, which was a common distributor for Kubota and us, so that has started working now, it's operational. So we'll see the numbers will start coming in from this quarter. So U.S. market is there, we thought which is a bigger market. But now I think obviously, there's some impact on the tariff unless we see a stability coming in post some sort of negotiation and agreement on that. But in the long term, I think that's one market which will really work for us. And you would have heard from -- I think Kubota globally has also talked about using India as a major hub for supplies to the world market for Kubota. So they are working on a larger plan.

So all the basic tractors, they want to shift to -- basic and high end also they want to shift to India. So that's the strategy what Kubota is working on. And I think we had mentioned in the last call also, there's a midterm business plan, which is being reworked now. So after the Kubota, this new strategy now is taking some time, and they expect their strategy will get approved sometime I think -- the first cut will get approved maybe by middle of this year. And then by end of last quarter or middle of last quarter of this fiscal, they will be clearing it from their Board. So once that gets done, then obviously, we'll put it into our plan, and we'll also then make it public.

[Vikram Damani, analyst]

Okay. Lovely. And just the last question. Given that the -- I think in your opening remarks, you all mentioned that the finance company has started operations, do we expect some sort of outsized market share gain coming through the finance support to our customers?

[Bharat Madan, executive]

So not immediately. right now, the company has just started operation. It's only, I think, about 4 months, and they're still testing the systems and gradually opening the market. We just opened the market in UP, MP and Bihar, but in a very selected district. But as we go along, the number of states and the districts will keep on increasing, more dealers will get added. So I think it will take 2, 3 years' time to start making that impact. So I think right now, the numbers should be small. But I think as we go along, the idea is they should be able to hit the similar penetration level as other captive finance companies are, which is roughly 30%, 35%. And when that starts happening, that will start impacting your market share numbers, too.

[Vikram Damani, analyst]

Okay. But that ramp-up will take some time?

[Bharat Madan, executive]

Yes, obviously, it takes time to build up.

[Operator]

Next question is from the line of Jaimin Desai from Emkay Global.

[Jaimin Desai, analyst]

My first question pertains to exports to Europe, where you mentioned that we would be -- we are looking at about 20% to 25% growth this year. Just wanted a clarification. Is this because of the Europe-specific products that we have introduced? Or are you also seeing some signs of -- early signs of, let's say, some stabilizing in the European market as a whole?

[Bharat Madan, executive]

So this growth is coming on an overall export number. It's not specific to Europe. So like you said, we are also opening Mexico now. We also started exporting to South Africa. There is a good market in Tanzania and Kenya, we are seeing good demand now. These are large orders which are in the pipeline, which we expect will materialize this year. [indiscernible] is a big market, and we're also looking at Myanmar, Cambodia, Thailand and other markets where we can look at exporting. So I think overall strategy is the export numbers will continue to grow, we'll open the markets one by one as your product availability becomes viable and you have the required products for their market. Those markets will get opened up. So this year, the expectation is we should have 20%, 25% growth...

[Jaimin Desai, analyst]

Got it. Secondly, you highlighted upon U.S. being a good potential market for us going forward over the medium to longer term. There, we had plans for some U.S. geography-specific products to be introduced. What is the update on that? Is that product development still continue?

[Bharat Madan, executive]

The U.S., like I said, will take time, but that will be the last market they will open but the product profile they need is different from what we are producing here. And then again, that will be something which will be coming up in the new product development program. That's what where the Kubota strategy will come into play, which is what they're looking at shifting some of the production volume from other countries to India, and that will include products which are getting exported to U.S. market, too. But that will take some time. I think once we get a plan from Kubota, Japan and this year, then we'll be able to form a strategy on the overall operation for that. But U.S. is the biggest market for Kubota. I think it's almost 8.5 million, 9 million turnover comes from that. So for Kubota, it's the biggest market outside Japan. So obviously, the numbers are good there, and Kubota is the market leader in the compact tractors in that market. So as and when the product starts [indiscernible].

[Jaimin Desai, analyst]

Understood. And finally, I know you spoke about a slightly gradual ramp-up of the component exports. But just from an opportunity point of view, the overall opportunity at about USD 500 million, assuming about 5% shift from Kubota's current global sourcing, that sort of opportunity still remain at that...

[Bharat Madan, executive]

Yes. So like I said, the potential is huge. Obviously, a lot will depend on how many products get localized plus your margins on the manufactured products in India will be much better compared to the sourced product from the outside vendor, which is more like a trading activity. So even though the revenue may come up, but if the margins may not be good enough to really continue building on that. So our idea is to have a mix -- good mix of the manufactured product as well as the credit products from the supplier.

Like I said, roughly, Kubota is sourcing more than $1 billion from a company from China today. And [indiscernible] obviously has an obvious advantage over there. I think issue they are facing is getting good vendors, which can meet their quality requirements, which is where I think it is taking time for them to build up. The testing processes are stringent. And I think the team from Kubota as well as India, they're working jointly to promote this business in India.

[Operator]

Next question is from the line of Vijay Pandey from Nuvama.

[Vijay Pandey, analyst]

I just wanted to check with you about the industry outlook in the domestic market, if you can guide a bit about the domestic market and also region-wise for which -- whether North or South, which will be the dominant region for the growth in FY '26?

[Neeraj Mehra, executive]

Vijay, so as I've already mentioned, we are looking at industry growth this year, probably in mid- to high single digit, which will actually take the overall industry to the highest ever for India. Now coming to the regional spread, we believe that the focus or the growth of the industry primarily will be in south and to a certain extent, east. The northern part or the central part of India last year also was kind of stagnant. It was a marginal 2.5%, 3% growth. And we expect that only that similar growth will remain in the north. But the primary growth actually will come from down south and the eastern part of the country.

[Vijay Pandey, analyst]

Okay. And sir, can you share what is your strategy on the construction equipment side because we -- the sales has been declining and probably we have also lost market share in construction equipment. So if you can just briefly tell us what is your mid- to long-term view on the industry? And how are you planning to tackle the decline in the sales?

[Sanjeev Bajaj, executive]

Yes, Vijay, Sanjeev here. So first of all, I would want to correct here that our market share is not declining. So we should see this product by product. So as we have 2 sections of business, one is material handling and compaction and the other business is offloading, which includes mini excavators of Kubota and backhoe loader. So for last full year, our crane market share is intact. There is a small decimal percentage of increase. There is no decrease there. And also, we have gained the market share in mini excavator. Currently, we are #2 player in the crane segment, and we are #1 player for this calendar year and financial year in mini excavators.

The challenged products for us are backhoe loaders and compactors. And compactors also, largely the market share is down because there is a huge volume increase in the exports business for the industry, which, of course, is not a strong play for us because all the multinationals, they have their manufacturing in India and they are exporting through their subsidiaries. But as far as backhoe loader is concerned, yes, there is a huge headroom available, and we have lost a bit of market share this year. It's about 0.2% down from last year. And it has also not been traditionally a very strong segment for us.

And that is the reason we are -- we are focusing on creating completely a new platform, which we introduced and showcased in January to the public in Bauma Exhibition and then Bharat Mobility Exhibition. And that platform has been developed in -- which is very modular, which will take care of the domestic demand as well as it will also can be adapted for various different specifications in various markets worldwide. And this product, we believe that we have done a very good job and the initial reaction from the customers who have seen this product and the dealers is very, very positive. And we believe that this segment where we are very weak, we should be able to turn it around. Now this is the first platform which we have introduced this year, and there are a couple of more versions of this product line, which is expected to come along with a premium range, which will -- which can come with Kubota engineering and Kubota engine and other interventions.

So we -- I don't see that for us, the challenge is having a good position in the market. Overall, the industry is going through a tough phase. Last year, of course, because of the assembly election, this was -- every year, the industry is down. And this year also our main industry, which is the crane industry is down by 13% in the last quarter and overall about 8% for the whole year. But I think in the second half of this year, as I said, things should start doing well. And next financial year is expected to be, again, a very high year because all the emission norms and other things which were -- which are currently the hinderance will go away.

So we believe that we will do well. And also on the strategy front, we are very focused on our product lineup for the future. Our focus is creating more value for the customer, bringing the cost down for ownership of the customer as well as the operation cost and also giving the right products for the right application. And that focus we will bring more products in next 2 to 3 years' time, which I think will give us -- put us in a very strong position. So we are very confident. So let's see how things go from here.

[Vijay Pandey, analyst]

Thanks for the detailed answer. Just want to clarify, you mean the construction equipment industry will start improving from second half FY '26, right?

[Sanjeev Bajaj, executive]

Yes.

[Operator]

[Operator Instructions] Next question is from the line of Rishi Vora from Kotak Securities.

[Rishi Vora, analyst]

Just one small question. What was the CapEx guidance for this year, FY '26 and even if you could give it for FY '27?

[Bharat Madan, executive]

So for FY '26, we expect to be somewhere between around INR 350 crores to INR 400 crores. And mostly, this is excluding any investment for greenfield. So if the land acquisition gets done, there will be another INR 450 crores to INR 500 crores this year.

[Rishi Vora, analyst]

Okay. So most likely, we should do around INR 1,000 crores, including land acquisition, approximately INR 800 crores, INR 1,000 crores?

[Bharat Madan, executive]

Less than that. I would say about INR 800 crores.

[Rishi Vora, analyst]

And should we expect that run rate to sustain going into FY '27 as well given that the overall CapEx outlay is around INR 4,500 crores for next 3, 4 years on the greenfield...

[Bharat Madan, executive]

So that still needs to be worked out because right now since the project is delayed now. So I think they also need to look at the existing capacity, how much we can ramp up in the existing place. At the end of the day, we're also looking at [indiscernible] investment which we do. So the volumes have to justify any fresh investment which will happen. So land acquisition is one part, but I think we'll get enough time to commercialize there in that area once we acquire the land. So I think as the volumes come, then we'll obviously follow that because there will be lead time, which will be required is minimum 24 to 36 months for any capacity to come up. So we'll have to take that into account based on how the volumes ramp-up happen. And then based on that plan, all the production should come into the greenfield.

[Operator]

Next question is from the line of Mitul Shah from DAM Capital.

[Mitul Shah, analyst]

Just a clarification, you said that after land acquisition for plant to become operational, it will be 24 to 36 months, right?

[Bharat Madan, executive]

Yes, that's a minimum lead time after you start -- you commission the construction there.

[Mitul Shah, analyst]

And sir, this INR 400 crores to INR 500 crores related to land you highlighted, is purely land purchase-related cost or it will include anything on the building the plant also?

[Bharat Madan, executive]

No, this is essentially land-related costs.

[Mitul Shah, analyst]

And sir, lastly, on the cash and cash equivalent, this INR 1,600 crores plus INR 110 crores, INR 1,710 crores from the Sona BLW already received or -- and excluding that, how much is the cash on balance sheet?

[Bharat Madan, executive]

No. So you would have to fully seen the intimation. The closing date was extended to 1st June. The certain approvals which were required did not come through. So we had extended by another month. So it was supposed to happen on 1st of May. Now we're planning to do it on 1st of June. So after the closing, there will be some money which will flow into our account. And since the approvals will be received post the closing only, so some money will still lie in the escrow account. So free money will not be 100% available to us upfront. I think once you get the approvals in place with the long stop date, I think, is September or October. And after that only, the money will get released to us 100%. Some money will get released to us, but not 100%. So hopefully, within this fiscal year, everything should get completed in that.

[Mitul Shah, analyst]

Cash and cash equivalents, excluding all this amount as of end of fiscal? Hello?

[Technical Difficulty]

[Operator]

Next question is from the line of Raghunandhan from Nuvama Research.

[Raghunandhan N. L., analyst]

Just a follow-up. On the captive NBFC, what would be the equity investment so far? And what is the plan for FY '26? And also if you can share what is the current book size? Hello, I hope I'm audible.

[Technical Difficulty]

[Bharat Madan, executive]

Sorry, the line got disconnected in between. Please, go ahead.

[Raghunandhan N. L., analyst]

Sir, just a follow-up on the finance business. If you can indicate what has been the equity investment so far and the plan for FY '26? And also, if you can tell the book size?

[Bharat Madan, executive]

So far, we have done an investment of about INR 60 crores in the finance company. The total approved investment right now, I think is about INR 200 crores in the initial phase, then finally, it will go up to INR 700 crores. So the balance I think amount will get injected in FY '26 into that company gradually as and when the book truly gets built up. So as of now, the book size is very small. I think they -- like you said, they are more testing the systems and gradually opening the dealerships. I think by end of FY '26, they will be sitting on a book size of maybe close to INR 100-odd crores. But the ramp-up will have happened. So I think we expect maybe 5, 6 states will have happen by then. And then next year, I think the ramp-up should get completed on a pan-India basis. So we'll see the faster book building happening this time.

[Raghunandhan N. L., analyst]

So by end of next year, we will be investing INR 700 crores?

[Bharat Madan, executive]

Initial approval right now with us is for INR 200 crores of capital. The authorized capital is INR 700 crores. So I think we still need to get the approvals from Kubota in Japan, the head office for the balance. But yes, the overall outlay which we have projected was INR 700 crores in capital. The balance will be more leveraged.

[Raghunandhan N. L., analyst]

Got it, sir. And I think the previous question, Mitul was asking about the cash reserves, if you can share that?

[Bharat Madan, executive]

Yes. So I think the line got disconnected. So I was telling him in the March end, we have almost INR 6,500 crores to INR 6,600 crores of liquidity. And this is after paying off the debt of the merged companies. So it's almost INR 350-odd crores. So with this railway deal getting closed, post taxes, we'll get maybe another INR 1,400 crores to INR 1,500 crores sort of net cash. So maybe by next year-end, after taking into account the fresh cash generation and the CapEx and the land investment, maybe we'll be sitting at somewhere around INR 7,500 crores to INR 8,000 crores sort of cash on the balance sheet.

[Raghunandhan N. L., analyst]

Got it, sir. And would that mean that would you consider anything on the dividend policy where the payout can increase?

[Bharat Madan, executive]

So we are gradually increasing the payout. So as you can see even this year, the dividend, which we announced is almost 25% of our profit. And I think our policy sales to drop to 40% gradually in the midterm business plan. So that's what Kubota follows globally. And from the free cash perspective, obviously, this is almost 30%, 35% now this year. So I think we'll continue to expand that. So that's the idea. Idea is also to maintain the dividend at sustainable level, so not go down from the level that we already distributed. So that's I think the momentum which we would like to continue with.

[Raghunandhan N. L., analyst]

And also payout could be in the form of buybacks also. Would that be possible?

[Bharat Madan, executive]

So buyback would have been a good option actually, but because the tax changes, from the investor perspective, this is really attractive now as an option. So the first preference would have been to do that, there is a scope to buy back 5% to 6% of equity from the market and given the cash to us, so it primarily made sense. But I'm not sure from the tax perspective now if it really makes sense to go with that option. So distribution will be a better option rather than...

[Operator]

As there are no further questions from the participants, I now hand the conference over to the management for closing comments.

[Unknown Executive]

Thank you, ladies and gentlemen, for being present on this call. For any feedback or queries, please feel free to write into us at [email protected]. Thank you very much, and have a good evening. Thank you.

[Operator]

On behalf of Emkay Global Financial Services Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.