Escorts Kubota Ltd
NSE:ESCORTS
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
2 701.4
4 374.7
|
| Price Target |
|
We'll email you a reminder when the closing price reaches INR.
Choose the stock you wish to monitor with a price alert.
This alert will be permanently deleted.
Escorts Kubota Ltd
You don't have any saved screeners yet
Ladies and gentlemen, good day and welcome to the Escorts Limited Q4 FY '19 Earnings Conference Call, hosted by SPA Cap -- SPA Securities Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Ms. Pavitra Subramanian from SPA Securities Limited. Thank you, and over to you.
Thank you. Good evening, ladies and gentlemen. On behalf of SPA Securities Limited, I welcome you all for Escorts Limited Q4 FY '19 Earnings Call. I also take this opportunity to welcome the management team from Escorts Limited. Today, we have with us Mr. Shailendra Agarwal, Executive Director of Escorts Limited; Mr. Bharat Madan, Group CFO and Corporate Head; Mr. Shenu Agarwal, CEO, Escorts Agri Machinery; Mr. Ajay Mandahr, CEO, Escorts Construction Equipment; Mr. Dipankar Ghosh, CEO, Railway Equipment Division and Investor Relations. We will start this call with a brief opening remarks from the management followed by an interactive Q&A session. Before we start, we would like to add to this -- we would like to add that some statements that we may make here will be forward-looking in nature. At this point, I'm handing over the session to Mr. Madan for opening remarks. Over to you, Mr. Madan.
Thank you, Pavitra.
Thank you, sir.
Ladies and gentlemen, a very good evening to you all. Thank you all for joining us on the earnings call for fourth quarter and financial year ended 31st March 2019. A snapshot of company's standalone annual performance is as follows: FY '19 was a tremendous year for the company, achieving a turnover at INR 6,196 crores, which is up by 23.5% against INR 5,016 crores in previous fiscal, led by double-digit growth across all segments. Tractor volumes went up by 19.9% to 96,412 tractors as against 80,417 tractors in previous fiscal. Construction equipment volumes up by 23.5% to 5,544 machines against 4,486 machines in previous fiscal. It's our highest-ever EBITDA of INR 733.4 crores is up by 31.6% as against INR 557.2 crores at previous fiscal. EBITDA margin now stands at 11.8% as against 11.1% in previous fiscal. EBIT margin for the company have gone up by 800 basis points (sic) [ 100 basis points ] at 11.8% against 10.8% in previous year, in line with our guidance for this year. Finance cost went down by INR 10.1 crores to INR 18.5 crores as against INR 28.6 crores in previous fiscal. The total debt outstanding as of March '19 is INR 277 crores. It's increased due to increased working capital requirements. Net debt, however, continues to remain negative at about INR 200 crores. PBT from continuing operations and before exceptional items stands at INR 710.2 crores, it's up by 37.8% against INR 515.6 crores in previous fiscal. The company achieved the highest-ever net profit at INR 484.9 crores as against INR 344.7 crores in previous fiscal year. The Board of Directors have recommended an increased dividend payout at 25%, that would be INR 2.5 per equity shares for the year ended 31st March 2019 against 20% in the previous fiscal. Now moving on to company's quarterly performance. The turnover is up at INR 1,631.7 crores, up by 13.6% as against INR 1,436 crores in previous fiscal. Tractor volumes up by 6.7% to 25,136 tractors as against 23,568 tractors in quarter ended March 18.Construction equipment volume went down by 5.6% at 1,455 machines as against 1,541 machines in quarter ended March '18. EBITDA is up by 9.3% (sic) [ 9.2% ] at INR 189.8 crores as against INR 173.8 crores in quarter ended March '18. Net profit for the quarter at INR 121.4 crores is up by 7.8% as against INR 112.5 crores in previous fiscal same quarter. On a consolidated basis, the turnover at INR 6,261 crores is up by 23.2% against INR 5,080 crores in previous fiscal, and net profit at INR 474 crores as against INR 346.6 crores from continuing operations. The consolidated EPS stands at INR 55.67. Now moving on to segmental business performance. Starting with the Agri Machinery business, domestic tractor industry volumes went up by 8% to 7.87 lakhs tractors as compared with 7.29 lakh tractors in previous fiscal. Our domestic volumes went up by 19% at 93,323 tractors as against 78,446 tractors in previous fiscal. Industry in our strong markets in Northern and Central India grew by 12.8%, whereas industry grew by only 2.6% in the opportunity market in Southern and Western India. In line with our Vision 2022, we have gained market share across all major states. So our market share in a strong market went up by 70 basis points and in opportunity market it went up by 120 basis points, resulting in overall domestic market share at 11.8% as against 10.8% in previous fiscal. Market share for quarter ended March '19 at 15% went up by 191 basis points as against 13.1% in corresponding period last year. On export side, industry went up by 4.2% to 93,000 tractors as compared to 89,000 tractors in the previous fiscal year. Our export volume went up by 56.7% to 3,089 as against 1,971 tractors previous fiscal driven by new product introductions and market penetrations. The EBIT margin for year ended March '19 stands at 14% as against 13.6% in the previous fiscal year. During the quarter ended March '19, the product mix was unfavorable as we sold 56% product by volume in sub 40 HP segment as compared to 53% in the previous fiscal same period thus adversely impacting our EBIT margin in the tractor business. In Q1 FY '20, domestic tractor industry is expected to witness some slowdown because of elections against initial guidance of over double-digit growth. On full year basis, domestic tractor industry is expected to grow between 5% to 8%, depending on how well the monsoon fares and the government trust and the policies against the rural markets. Last week, we announced a new feature called 24X7 Care Button for customer service across entire range of Powertrac and Farmtrac tractors. Now all of our customers can just press a special button on the tractor any time of the day for any technical or other help and receive a call back from a trained company engineer within 2 minutes. Going forward, we will be launching new innovative products to increase our customer productivity and earnings. Coming to the construction equipment business, construction equipment industry grew by 16% in FY '19, with respect to FY '18. All major segments have seen a positive moment. Our served industry, backhoe loaders, pick and carry cranes and compactors went up by 22.6% in FY '19. Cranes have been the biggest gainer in FY '19 with growth of 26%, followed by backhoe loaders that grew by 22.2% and compactors that grew by 20.5% in FY '19. Our total volumes manufactured and traded products went up by 23.6% to 5,544 machines against 4,486 machines in the previous fiscal year. EBIT margin for the year ended March '18, stands at 3.6%, up by 166 basis points as against 1.9% in previous fiscal. Barring some slowdown on account of financing issues always until elections and external environment, we'll be growing our margin in FY '20. Going forward, we expect that our served construction equipment industry will continue to grow in mid-teens in medium to long term, and we'll be launching new innovative products and volumes to cater this growth. Coming to the railway division. Revenues at INR 394.1 crores went up by 37.5% as against INR 286.6 crores in previous fiscal. EBIT margins went up by 529 basis points (sic) [ 600 basis points ] at 19.9% as against 13.9% in previous fiscal. In Q4 FY '19, revenue went up by 30.2% (sic) [ 36.1% ] at INR 103.5 crores as against INR 76 crores in same quarter of previous fiscal. EBIT margin at 15.2% as against 15.9% in same quarter previous fiscal. But during the quarter, we have executed more orders for the new products with more import content as compared to previous fiscal, which led to some impact on margins. In future though, we'll be able to mitigate the impact with gradual localization of these components and improve the margins. Order book for this division stood at more than INR 490 crores, which will get executed in the next 14 to 15 months. Going forward, we accept -- we expect railway equipment segment to grow at 15% to 20%. Now I request the moderator to open the floor for Q&A, please.
[Operator Instructions] The first question is from the line of Raghunandhan from Emkay Global.
Congratulations on a good FY '19 and all the best going forward. Sir, a couple of questions. One is on the tractor side. How do you see the growth panning out over the next few quarters, which will finally accumulate into a 5% to 8% growth for the full year? Also, how is the competition intensity like of late, there has been some slowdown leading to like higher competition both on the pricing side and on the discount side. How do you see that panning out? That was my first question. Secondly -- yes, please go ahead, sir.
Okay. Let me answer the first one before you ask the second question. This is Shenu Agarwal from Agri Machinery business. So as we have said in our opening comments, the tractor industry is going to be somewhere around 5% to 8% growth level in fiscal year '20. That is what we can estimate right now. Of course, there has been some pressure in the industry since Q4 of last fiscal and that is mainly because of a very, very high base, as we have explained before that Q4 in 2018, the industry had grown by about 49%, so we were sitting at a very high base. And therefore, this year through 2019, there was a negative growth that we have experienced which was also kind of foreseen because of the very high base. Now this has continued a little bit in Q1, mainly because of some disruptions because of elections and some amount of uncertainty. But we continue to believe that fundamentals in the ground are all positive except for -- except that we had to wait for -- wait to see how the monsoons pan out because right now, there isn't water levels -- water reservoir levels are quite low. And therefore, we are hoping that as per the IMD forecast, if we have a normal monsoon, then we think we'll see -- there could be a better scenario panning out. Right now, our estimate is between 5% to 8% for the year.
What I wanted to understand was a bit like Q1 is lower than what was initially expected. How do you see the growth picking up? Would that be stronger post elections? How do you expect 2Q, 3Q or 4Q to pan out because the base effects still continues?
Yes. So the base effect is not that high as it was in quarter 4. For the whole year the industry last year grew only by 8% while in quarter 4 was very, very substantial at 49%. And therefore the base effect is not that enhanced in Q1, Q2, Q3 as it was in Q4. But in any case, we think that after elections the market should return to some normalcy, and there has also been an effect in March and April of some delayed harvest and the market has still not picked up until now. But I think when the harvest would be over, I think the market will pick up. And we have seen some signs of that happening in states like MP where the harvest is almost complete in a market they have become very buoyant already. So we think that after harvest and possibly after elections the market will see some growth back which we haven't seen in March and April.
My second question was, how has been the mix between Powertrac and Farmtrac for the full year versus last year? And also like, has Powertrac been launched in all the Farmtrac states? Is there any further scope for penetration there?
So yes, as far as mix is concerned I think Powertrac and Farmtrac is at a ratio of the total sale is pretty much the same as it was last year with only slight changes. As you know we have a strategy to grow both the brands and we have a dual distribution strategy which have put in place for the last couple of years, and we are expanding -- in last few years, we have now created a dual distribution separate for Powertrac and Farmtrac in about 6 states, and now going forward, we are going to continue to implement that strategy in the rest of the states also. Right, so in the next 2 to 3 years, we hope that we have a pan India network for both the brands, separate distribution network for both the brands, including the site.
Our next question is from the line of Hitesh Goel from Kotak Securities.
My question is to firstly related to the EBIT margins in segments. In tractor I understand there's a mix impact which has impacted segment, but construction margin have been pretty volatile. So can you please explain what is happening this quarter? And how should we look at construction margin next year? And in railways also first half this year was very, very strong and then margin has come off. So how should we look at margins in railways as well? And my last question would be on the balance sheet. Basically, we've seen a significant deterioration in working capital. You've been indicating that the dealer inventory levels have not increased at normal levels, whereas If I look at the inventory at the factory has increased quite significantly, even receivable days has increased and payables have reduced. So can you just shed some light on the working capital as well.
Sure. So coming on the Construction Equipment segment, I think if you look at the trend quarter performance, and the construction sector, the last quarter was the best quarter. And also in this quarter we've taken a significant pricing increase right from the first month in January itself. That has been one of the pending issue -- a long pending issue which was impacting the overall margin for Construction Equipment segment, so we're not able to pass on the inflation to the market for almost the last 5 to 6 quarters. So this time we've taken that call and I've kept that conscious call, which led to purely some volume impact also, as you've seen in this quarter when volume went down by about 5.5% but the margins have been pretty good at about 7% EBIT margin which we achieved in this quarter for the Construction Equipment segment. So overall, I think if you look at full year basis, we're still lower than what we've guided for. We are expecting 4% to 5% sort of margin in this business on the full year basis, but because of this delayed passing on the inflation impact, I think it has some impact on the overall margin which get ended about 3.6% last year in the construction side. So going forward, I think, next year, we think we should be able to improve the margin. So again we should be back to about 4.5% to 5% sort of range on a full year basis. And then coming to the Railway front. So like I said, in Railway it will all depend on what sort of mix we sell because every order is unique. In the first quarter, in this fiscal, we have sold a very large order which we had received was on account of couplers with the miles are very good. But going forward, obviously the mix started going down. And if you've seen in the last quarter also the maximum sale which has happened, 27% of the volume on the Railway side came from new products where the margin has been pretty low because of high import content which we have in those component today. So overall, we think still we ended the year with about 19.9% EBIT margin and for next year we still expect that the growth is happening more on the new product side. So overall margin may be slightly under pressure compared to what we actually seen in this year because this larger order, which came on the coupler side. But still it should be anywhere between 17% to 18% sort of range on a full year basis for next year for railways and given the kind of order book which we have today.So the other question was on the working capital. Yes, I think what we have been facing issues on the working capital side because the growth momentum which continued in the first 3 quarters of the year is very aggressive. So we actually were looking at expecting very good quarter to go with Q4, too. In predictions remember even for Q1 we had actually guided that the growth rate would be somewhere between the double digit 10% to 15% percent range. So actually the overall production was running at a high utilization levels in December to January also which are typically the off season months, which led to some impact happening at the year-end because all those production, our tractors has got produce, which were still lying in the inventory with this time the Navratra season got shifted to April and we are expecting the season to be very good, but actually we did not see much pickup happening in most of the key market. In growing market like Gujarat there is typically the high season market in Navratra but they also see a decline actually in the spend. So that is an issue and impact on the inventory side, on the receivables side and also there are payables and most of the pressure happened in the initial month of December, January. And after that, we took a cut down on the production, so the payable days also went down at 31st of March. So if you look at the debt level also which has actually moved up, so even though compared to the last year's numbers, we were actually on a negative debt position. It is only INR 50 crores of term debt for there but we had INR 600 crores-plus of cash on the balance sheet. This year we ended with only about INR 200 crores of cash on the balance sheet on a net basis. So about INR 400 crores actually got utilized in this year because of working capital issue which the company had faced. But we are correcting that situation but these are most internal in nature and within another 3 to 4 months' time we should be back to the normal working capital levels. So maybe by July, we expect we should be back to that position which we were in. The cash should be back on the balance sheet.
So July basically, you're expecting it to become negative working capital, right? That was...
Yes. So we actually cut down on inventories and production also, so obviously that impact will take time. By the time your vendor payment gets realized and it gets impacted, so I think it takes 2 to 2.5 months' time so hopefully that correction is setting in now. So hopefully by end of July, we should be back to a normal position there.
The next question is from the line of Mihir Jhaveri from Avendus Capital.
I just want to know, when you talk about inventory, what is the inventory situation right now?
The inventory, you say for the channel? Or with us?
Both.
Turning in the channel, like I said obviously in end of March, we were at close to 4 weeks of inventory with the channel partners, which also was slight buildup compared to the 3, 3.5 weeks so which was running until February because we did the buildup only because the Navratra this time was in the first week of April. So we were expecting it will be a good season. So let us say some buildup happened in the end of March. But now as we purely will exit the month of May, I think it should be back toward the same level of about 3.5 weeks or sort of 4 weeks of inventory level which purely will go down further by end of June. So by end of June, we will be back to about 3 to 3.5 weeks' level of inventory. As far as the company is concerned, in March definitely like I said since we were actually -- we had made tractors assuming the season will go off well, but again since corrective actions had to be taken. So cut down happened in the production numbers going forward, in April and May also we are cutting down. So again, by end of June, we should be back to -- normally we maintain 2 to 3 weeks inventory with the company, so we should be back to that level by the end of June.
Okay. At the start -- at the end of the fourth quarter probably you had guided for a 10% volume with double digit which you said 10% to 15% for Q1. We've already seen a negative number, so is it that the first and with this inventory correction and all, do we say that the wholesale dispatches probably for the quarter would be negative? Is it fair to assume that way because if I were to look at it from the next 8-month perspective for Escorts, for a company as such bearing the monsoon months, the base is pretty high. Which is what one of the analysts also questioned. So I just wanted to understand how we should look at it from that demand perspective for Escorts particularly.
Shenu, you would like to answer that?
Yes, I would. So as we said, more than the stocks, I think, this is a kind of a matter of elections, and a little bit of delayed harvest and also a higher base in Q4 leading to some pressure on the growth levels, right? So Q1 estimate is still not very encouraging for the industry. We would bounce things and that industry is going to grow in Q1 that much although a lot, it is yet to be seen after the election results are out. You know there is a possibility of some growth coming back. But right now the industry growth does not look very favorable in Q1. Of course, Escorts has been able to beat the market trends. Whole of last year, we were actually the fastest growing company -- tractor company in the country. Last year we had about 19% to 20% growth as against 8% industry growth. So our effort will be towards that, to beat the market trends in Q1 as well.
And secondly, sir. How are the discount levels right now in the industry given that the volumes are not -- same question as what competitive intensity, but do you see the discount levels have actually gone up at the start of Q1 versus Q4?
I think there are a couple of players who have resorted to a little bit of bulk discounting, but I don't think that's kind of a trend right now. I think the intensity is same as it was in the entire last year also, right? But I mean, we have just started the year, a lot is yet to be seen. But for sure, Escort is not resorting to any unusual discounting tactics now or we have no plans. In fact, we're coming up with lot of new innovations, a lot of new features with our tractors, and we hope that customers would really like these, and I would especially like to mention -- Bharat also mentioned that in his opening remarks about this 24X7 Care Button and this is something that we are feeling -- we are getting a lot of positivity from customers in the ground since we have launched. So I think -- I don't think there would be any significant decrease in competition intensity going forward.
The next question is from the line of Gunjan Prithyani from JPMorgan.
Just 2 follow-up questions on the industry. You mentioned that there's a huge divergence in growth trends between South, West and North and East. Anything specific that you could explain to us like why is this meaningful divergence there? And also, secondly on these subsidies. Have you seen that this year, towards the second half, you saw lesser tractor subsidies from the government? Anything that you can give some sense on the subsidy would be helpful?
So you have seen the trends of -- geographical trends in India over the last 1 year. I think those trends are going to continue for at least some more time, which means that North, East and Central are going to grow much more faster than South and West. And then state like Maharashtra and actually the entire southern region is going through a very bad phase as far as industry is concerned. With Maharashtra actually going down about 50% from last year in the last few months. So I think that trend is going to continue because there are reasons behind that, which we won't -- which we don't think will get addressed very, very soon. So I think this trend is going to continue and this is actually going to be favoring us a little bit more than the rest of the players because we are much stronger in North, East and Central, although we have gained market share in almost every market. But overall, it is going to be favorable for Escorts.
In Maharashtra you mentioned the trend will continue. I mean, this was more an issue of rainfall challenges that were there? But I mean, is there anything else that gives you the confidence that Maharashtra will remain depressed? In the South, I thought that particularly, there were a lot of subsidies in that market. But still, the growth seems to be -- I mean, the decline seems to be pretty sharp in that market as well.
Yes. So see Maharashtra and South is mainly because of the water situation. And it's not so much about the monsoon, it's more so about the water reservoir levels. For tractor industry if you have -- if you analyze it, it does not have as high a direct correlation with monsoons as it has of water reservoir levels. Of course monsoons impact those, but with a lag effect. So water reservoir levels in Maharashtra is quite critical right now also in some states of South. So I don't think, even if we have maybe an okay monsoon this year, the South and West situation will change very dramatically. Of course, it will help for the next year if we had a good monsoon in South and Maharashtra. You know, it will definitely help next year. Well, I think this year it's going to be -- it's going to continue to be depressed. Yes, so subsidy, on the subsidy part it's true that many of the Southern states have kind of a slowdown the subsidy outlays in the latter half of the last year. And even now we don't have any visibility of any major subsidy schemes getting out in the South and the West, and therefore, that actually is also playing a little bit negative for those regions.
So overall subsidies accounted for how much volumes in FY '19? And if you are not seeing any visibility there, does it mean any risk to give because last 2 years, this has been a big support for the industry in terms of accelerating the replacement.
Yes. So subsidy has been a major phenomenon in South and West only. I mean in North -- in Northern states, we have not seen that subsidy even last year and the year before the last, except for Assam where we had some subsidy schemes that was running by the government last year. So I'm specifically speaking about South and West side now. And the South and West, the subsidies would have been about -- I would say about 70% to 80% of the total subsidy that has been given in the country, which has kind of vanished in the last few months. So let us see after elections if something comes up. We are hoping the government will kind of resort to some measures to uplift the rural sentiment...
Sir, overall industry how much would it be in terms of volumes, like 10% of industry volumes coming from these subsidies or any number that you see?
Yes. It's roughly about 10% for the last fiscal, so roughly about -- let us say, about 70,000 to 80,000 tractors.
The next question is from the line of Aakash Mangani from BOI AXA Mutual Fund.
I had a question on the working capital situation. I know this was asked earlier, but I would like to sort of emphasize on this point. I mean, from looking at working capital, especially the operating cash flow in the business over the last decade or so, I mean this year, probably seems to be the worst that we had seen to the tune of negative INR 60 crores, INR 70 crores of operating cash. Now even in the previous cycle, when we had a sort of down years, we've managed to -- you made somewhat of a decent operating cash flow; whereas this year, in spite of the healthy growth in sales, EBITDA, PAT, there's no cash flow in the system at all. So how soon can we resurrect this? And will this normalize during the course of FY '20? And could you elaborate on the reasons which led to such a big deterioration in the working capital? I know you mentioned 1 or 2, but I was not exactly clear on the reasons.
First, I think we'd mentioned, if you look at the growth trend which has happened in the last year in the tractor industry, so first, I think which was in the sense this third year of growth happening in the industry. So the first year in FY '17, we saw about 18-odd percent growth industry; then again, next year grew by about 22%. And this year again, we're seeing about 8% growth overall. But if you look at the first 8 months, the industry grows further likely, from April to November, we're running at about 14-odd percent. And then December, we saw a really small growth of 5%; January was flat industry; February was minus 3%; and March, April, we saw 15%, 16% decline happening. So I think until the time we are seeing and Escorts were growing double the rate of the industry growth. So if the industry is growing at 14%, we are growing at 26%, 28% sort of the growth level. So obviously, the expectation was the growth momentum will continue. So until November, we'll be likely holding the same belief that quarter 4 will likely be a very good and probably we'll be continuing to do that sort of volume growth happening and it will happen in this industry. But assuming based on that belief only, so we activate the running of the high production levels in December and January month to build up inventory for the season months of March and April. Unfortunately, the industry starts collecting itself from December itself with a really small growth; and then January onwards, that we've seen the flat industry and declines started happening. And the sharp decline has been in March and April, which exactly came more like a surprise. But, initially, our guidance and believe the industry will continue to grow double digit in the first quarter. So that has led to some increase in the inventory level which we are holding as of end of March. And also because we had preproduced those tractors in the month of December and January, so most of the payment to supplier also has to be done before end of March because all those payments become due. So that led to the payment days also going down. And obviously, going forward, certainly, we already cut down the production numbers in February and March, looking at the market trend and looking at the trend scenario what Shenu just explained, that Q1 is also not looking very healthy, so it may be flattish or maybe slightly degrowing quarter and due to election scenario. The pickup may happen only in the June month after elections are over, so we expect by end of July, we should be back to the normal working cycle level. So the old inventory will get liquidated, will be back to the normal channel stock of 3-, 3.5-weeks of inventory. And also the payable days will come back to the normal trend with all these cuts in production happening in the last 2, 3 months. So that impact will be more visible by end of July.
And what has been your receivables?
So the receivable, again, is the same issue. Because normally, when you see the industry taking continuously about 3 years and we are growing more than the rate of growth in the industry. So dealers' working capital also comes under a lot of pressure. So even though they have been actually supporting the company so far, but obviously, that is putting a lot of pressure and will increase right from a dealer's end also. So some bit of correction that way I think is good for the industry held to, where the dealer can't afford to cope up with that sort of growth in a very short time frame. With the banks don't really start lending you money just based on that. And they will keep doubling your limits every second day. So that's a little bit of challenge. So I think we expect the debtor's level will also come down by, I think, the end of June or by end of July. So which is the hope which we had. So I think by getting back INR 400 crores, INR 500 crores of working capital back into the system by end of July is what we are looking at right now.
Okay. Let's hope we achieve this. The other question is could you talk of -- is there any cost pressures in the tractor business? And what is the outlook on EBIT margins for this business for the next financial year?
So cost pressure is down with the commodity prices, so obviously, Q4 we don't see really much impact on the commodity side. So it was more or less flat in the quarter, so no really inflation, deflation really happened. And we are not really seeing any pressure from the commodity side at least in this quarter 2. So we expect having that up or level will get maintained. And the overall margin business, I think if you look at the Escorts overall number, last year, we had improved our margin -- operating margin at the company level by about 100 basis points. And we expect by -- on a full year basis, even for next year, if assuming we are able to grow at a level of even 5% to 8% at the industry number or what we talked about. On the back sort of number and the cost initiative that the company is taking, we should be able to improve the margin by 40 to 50 basis points lower what we ended this year with.
Okay. This is provided we grow at least in sync with industry, right?
At least in line with the industry. That's right.
The next question is from the line of Mitul Shah from Reliance Securities.
Sir, I have 2 question. One is on the tractor side. Basically, we are saying 5% to 8% industry growth assuming normal monsoon. So in that situation, because of the last year's lower monsoon in the South and West base is very low, that is possibility when the -- if the monsoon is normal, those regions will bounce back more strongly. So growth could be much higher in those regions. So -- and our stronger market may not grow to that phase. So what is your view in terms of growth in the South and West compared to UP, MP, Bihar which is our stronger market?
Mitul, this is Shenu. So Mitul, as I explained, we have seen in the last several, several years that monsoon does not have a very, very high correlation with the tractor industry in the current kind of period, right, because the more higher correlation is actually is with the water reservoir levels. Now if the water reservoir levels could have been on -- at a reasonable level in South and West, then of course, a good monsoon would have really spurt the industry in South and West. But I think even a good monsoon this year will not have that kind of an effect because people will first wait for the water reservoir levels to come up before the sentiment gets built up. So I think it will have a lag effect just because of the current situation, but new growth may not be as high as it has been if you get a good monsoon in South and West. But I think North, East and Central, they will continue to beat South and West when it comes to industry growth during this year.
And within this, sir, how much would be approximately nonagri usage right now in current situation? And how much will be purely agri-based so which will not have even effect of this monsoon?
Yes. So nonagri usage has become quite substantial now over the last few years. And therefore also, this is also one of the reasons why we see that monsoon does not have a very, very direct correlation at least 20, 30 years ago, right? So nonagri usage is as we say, a little bit random. A lot of it depends on the government policies and the amount of expenditure that is done on the cost structure, etc. I think that -- but just to give you a number, I think it comprises about 30% to 40% of the impact on tractor purchases.
Okay, sir. My second question is on the construction equipment side. So these Q4 numbers in terms of ASP also very strong. As you stated, price hike is taken. But is it to any onetime product mix kind of impact or we can expect similar product mix on a full year basis for next year? Or Q4 was inclined towards better product mix?
This is Ajay Mandahr from construction equipment. If you look at the price increase, we were behind in 5 quarters on the pricing side because the inflation was too high, and the competition was not passing on the price increase. But we have passed on the price increase in January, and the people have followed us in that respect. This price increase coupled with a better product mix, if we see the overall growth, we talk about 43.6%, 44%. And the top line growth in the revenue is about 34%. The mix has changed all together. So we are more concentrating on the products which are giving us the better contribution now, that's the game that we are into now. And that is what we are doing, we'll continue to do on that side.
So there is no seasonality impact in Q4 in terms of product mix?
No. The growth went to the lower side in the quarter 4, that growth in both sides. Because of the run up to the election and the uncertainty, the liquidity crisis between --so I think going forward, with the formation of the right government at the center and with a lot of orders which are already there in the pipeline, I think this momentum will continue.
The next question is from the line of Jatin C. from Crédit Suisse.
This is Jatin. Just on the working capital thing, I also wanted to check on the GST refund side, what's the amount that's still pending from the government? And is that a factor as well?
Jatin, the total amount which is due on GST account as of end of March was close to INR 177 crores which is a mix of audit duty refund for tractors as well as from the refund, which is due because of export. So some of the amount for example, on exports, we received some amount in month of April. And as we started seeing the money is coming back now to the system. So we expect I think by -- again, like we said, by July, we expect at least INR 80-, INR 100-crores should likely come back into the system. After election, the government will start reliving the money. So that's the hope which we have today on that.
My second question is on this commentary that tractor sales has slowed down during elections. What exactly happened that's causing the slowdown? Because it's -- I'm just thinking why should things -- why should a farmer not go and buy a tractor because it is election time?
Okay. It's a bit of a -- kind of a tactical situation that we think during election and not so much in these Central elections, they are more so in the state and municipal and other elections. But then I mean because -- I mean we are a very kind of a push base, kind of a rural market, right. And a lot of states, get very politicized at the ground level, right? So I mean, which is like such Aachar Sanhita and stuff like that. So it is the movement on the ground becomes a little bit tougher. And the kind of market activations that you want to do, to fetch more demand, that -- all that stuff goes a little bit slow. A lot of people get engaged in canvassing, et cetera, et cetera. And that's kind of the environment that we have in the villages is not very, very conducive to face. I'd say it's a very, very tactical reason. So that is one. I think on a more broader macro level, people kind of tend to wait until the election results are out and they kind of start hoping that something will come out with the new government, et cetera. But I think that is not such a big reason. I think more so it is quite tactical in terms of the company's ability to kind of reach out to the customers and do market activations, et cetera.
On FY '20, I think on the tractor side, you said your margin ambition is a 40 to 50 bps improvement. On the market share side, what is the ambition for FY '20?
Yes. So I mean we are, as I said we are going to continue to beat the industry. And as per our Vision 2022 document also we want to grow at least 1% market share each year. And last year, we grew about 1.1%. So we'll try to repeat that kind of a performance going forward.
The next question is from the line of Bharat Gianani from Sharekhan.
Just elaborating more on the question asked previously. Do you -- the tractor EBIT margin, you have guided for 40, 50 basis points of improvement on FY '20. So I think you achieved a 40 basis point improvement in this year, a very strong volume growth of about 20% or so. And FY '20, obviously, the volume growth will not be that much. So what gives you that kind of confidence that you may now achieve -- we may still continue to improve the tractor margins? So that would be my first question.
Bharat, first of all, the guidance which we've given for the margin is at the company level, not specifically for tractor segment. Secondly, I think if you look at overall, last year, we obviously have improved the margin by about 100 basis points at company level -- or the EBIT level. And then now we see a lot of cost initiative which are underway. Even though the operating leverage may not be there next year at the kind of level we got last year. But still going forward, the kind of initiatives which we are underway, with the impact which will start coming in from second half of this year. So maybe you may not see the same sort of margin improvement happening now in the initial first or second quarter, but maybe more towards the end of second quarter or third, fourth quarter, we'll see the impact of those initiatives coming on to play, especially on the material costs from which we're working on today. So those initiatives will definitely play out. And we think overall at a company level getting that sort of margin improvement is a possibility which exist today.
Okay. So what would be your -- specifically if you would like to give guidance on the tractor segment or specifically if you would like to give some guidance on the tractor segment.
So like I said, tractor obviously will be the largest segment, so we are talking about 78% volume is coming from tractor segment on the top line. So the major impact will come in the tractor segment only. And the railway we are not looking at any margin expansion there compared to current year. So railway I think will slightly go down. It's only construction that we see income improvement. So both likely -- typically railway, construction will get more or less balanced out. So definitely it will be left with only the tractor business.
Okay. Okay. And that you're saying that is contingent on if the industry grows on the higher side of the band, I mean sort of 80% -- 8% kind of growth?
That is right.
Yes. I also -- this is Shenu here. I also want to add that, one of the major challenges in the tractor business we are facing right now, which is the product mix. You would all remember last year, in January -- around January 2018, we had taken a strategic call to launch several new products in the segment which were actually not that remunerative. So for example, in Farmtrac, we never played below 45 horsepower. And then in January 2018, we've launched a couple of products that were below 45 horsepower. We also launched a rice special tractor, and we launched the compact tractor for options. Right now, those tractors -- all of those tractors were not very remunerative and kind of contribution that we normally do, especially on the Farmtrac range of products. But we consciously make that call in order to kind of cater to the market, in order to grow in certain markets that we really wanted to. Now after having launched those products for about 12 to 15 months, those products have established quite well in those markets, right? So now we have -- now we are in a better position to kind of look at their contribution, both in terms of cost savings but also in terms of the price positioning and see whether we can probably generate better contribution from those models now since we had significant volume from those and they have established quite well. Now very essentially, we took a price increase on some of these models, which will help us going forward. And in the future also, we are going to continue to look at those revenues.
[Operator Instructions] The next question is from the line of Prateek Poddar from Reliance Nippon Asset Management.
So just one small question, which was regarding your tractor guidance for the industry to be 8% to 10%. And you just said in the initial comments that 10% of the tractor sales comes from subsidy. And in case if there's a scenario wherein there is no subsidy doled out by the state government or by the central government next year, is it fair to assume that, in that case, the industry growth will be flat?
Yes. It's kind of -- I mean sorry about that, but it's kind of a hypothetical question because, I mean, there is no scenario like this that will happen. I think subsidies will be there for sure. I mean, we are just kind of speculating at this point of time how this will pan out. But we are not looking at any scenario where there will be no subsidies at all. And so -- and there are a few things already in the option in several states that those will be kind of rolled out after the elections. So I don't think there is any scenario where we have no subsidies at all. Maybe it's slightly better or slightly worse than what we have seen now.
And sir, what are the assumptions broadly when you guide for an 8% to 10% industry growth? Just wanted to understand what is the basis of that. On what basis, I mean, are we projecting that kind of tractor growth?
Yes. We are actually projecting 5% to 8%, not 8% to 10% right now for the whole year FY '20. So -- but of course, there are a lot of external research and internal research that we based it on. I mean, there is a lot of statistical data. But most importantly, I think what we have going for us is the pulse on the ground, right? So there are a lot of -- I mean, we sell tractors in villages every day and we interact with our customers every day, so we'll know what is happening on the ground, right? But -- so that gives us a fairly good idea of what can pan out, of course, with some limitations. And then we are also relying on a lot of external reports of different agencies and we see what they'll have to say.
The next question is from the line of Riken Gopani from Infina Finance.
I just have one question. I'm still not very clear, hence, I may be repeating the question. But compared to where you were at the end of third quarter, expecting some reasonable numbers for the industry for Q4 as well as Q1, what necessarily has gone wrong for us to see such sort of a change in trajectory for us as well as for the tractor industry? You touched upon elections as well as harvest. Maybe are there -- are these the only factors or is there anything? Because we have also heard from some consumer companies trying to outline that rural markets are in some sort of stress, and the demand there is weak across in other auto company. Are there any other trends that are emerging which is -- which may sustain even after the elections in which are causing the strain in the rural markets?
No. So see I don't think something extraordinary has gone wrong here because I think we were always -- even at the end of Q3 or some time in Q3, we would be adjusting about 10% for the whole year. 10% to 11% and it ended up at 8%. So definitely, quarter 4 was a little bit of surprise. But we will always -- we always knew that we were sitting on a very, very high base in quarter 4, right? And I always used to say that we, I mean, in 2018 grew by about 49%, so it was a bit tough that kind of a situation where things would go a little bit wrong, right? But speaking on the situation on the ground, I'm actually a little bit more optimistic than what we read in the newspapers right now because what we see on the ground is not as bad as what we read various things, right? So I think the sentiment is quite positive. I think the only 2 fundamental factors that are not rated very high is the water reservoirs level, which actually depends on the monsoon and if we believe the IMD forecast of a normal monsoon, then hopefully, that should turn out to be very positive. And the second is, of course, a high base. So we have had 3 years of splendid industry growth, and there is a chance definitely that we will have probably a year of mellowed down industry growth this year. I think other than those 2, there is no negativity on the ground in farm -- in farmers' mind, anything that you thought will drive the industry.
Understood. And sir, if you could touch upon the finance situation, the percentage vehicle finances this year for you and what is this internally financed by the -- by your own finance company, if you got financing, if you could highlight those aspects.
Yes. So the -- of course, this industry is very dependent on finance, on retail finance. And somewhere close to 92% to 95% of the tractors are financed. So only about 5% to 7% of the tractors are like bought on full cash, right? So it's a highly dependent industry, but the situation in the financing side is fairly okay. We are not taking any challenges. As per as our venture -- joint venture with DLL is concerned, which we call Escorts Credit, they're reaching about 15% penetration levels, right? And of course, we are going to continue to grow there as we go forward.
The next question is from the line of Mayur Milak from IndiaNivesh Securities.
I have 2 questions. One, on the VRS, well, I remember that a couple of years back, we were trying to do VRS for about 1,000 employees, of which about 400, 450 had taken it, and we were waiting for a natural retirement of those in the next 3, 4 years. So I wanted to know that has that retirement happened or -- and can we expect substantial savings in the staff cost going forward?
So I think the retirement obviously is happening. Because last year also on an average, when we have guided this, we had given a VRS scheme at that time, we had at almost 450 employees have exited towards -- in over 2 years. And after that, about 150 employees were getting retired every year. That attrition mostly is happening in terms of normal course though. Then all the level attrition has come down to about 90 to 100 employees per year on an average. So yes, the numbers have come down. So if you look at the last 5 years, I think from the regular work so close to 4,000-plus workers. Today, we are down to about 2,000 numbers. And the numbers are further depleting. There is no further addition happening on the regular manpower. So that obviously is coming in line, which is why I think you'll see the manpower cost also on our P&L this time. And from a high of 11% to 12% is now down to about 7.2% this year. So that correction has been the -- obviously the result of all the initiatives that the company have taken in the past.
So do we expect further swings on those lines? Or this is where we will steady out?
No, we don't think it will be really easy to go down further from the current level. As we see, since the operating leverage, also may not be able to work to our advantage going forward. So that could be one bit of challenge. So yes, the company is still working on looking at ways and means of actually managing that cost going forward, but we don't think it will have any significant impact on the overall percentages and the total costs really and numbers are down.
Right. And then, sir, secondly, on your gross margins, so you have -- is it really fair to understand that because the material cost in the international market, there are some which are going up, and there is this variation. So I just wanted to understand that how directly does it impact us in terms of the lag effect. Do we expect the higher cost coming forward because of this increasing steel prices?
Yes, if you look at the last few quarters, I think 6 to 8 quarters, our inflation has been pretty aggressive. Especially on the steel side but also with the government imposing antidumping duty on the steel. So obviously, there was an impact now on the commodity prices side and which is now one also which was impacting our margin in the construction equipment business. Though in the tractor business, we're able to pass on the increases to the market though with the lag of about a quarter. But in construction, we had faced a challenge, and we were likely sitting on some of the inflation which we are not able to pass into the market. With every contract deal, there is a negotiated deal unlike in tractor business, which is more like stock-and-sell model to channel partners. So -- but going forward, we expect -- I think if the industry softens further and when you are seeing that impact happening across all the other industry. So hopefully the pressure on commodity prices should not be there. But yes, if there is a global change happening on the prices that definitely does translate to the impact on the Indian market too.
The next question is from the line of Siddhartha Bera from Nomura Securities.
Sir, can you first indicate what will be the quantum of price increase we have taken in the tractor segment in this quarter?
In tractor segment there is no price increase taken. And not in this quarter. We have taken the price increase in the end of December quarter. I think end of November we've taken after the season was over we have taken that impact, which is why I think in the last quarter, we didn't see any impact really on the cost and pricing front. So it's not really a requirement as of now to really take any price increase on the tractor sector.
Okay. But in this quarter, we are seeing...
Yes. Just to clarify, as I had explained, there were some new models that we had launched about 12 to 15 months ago, and we have taken a small price increase in those models to just balance our kind of growth and profitability objectives. But that is not a wholesale -- a wholesome price increase. That is only on a couple of new models that we have taken in April.
Okay. So, but if I compare sequentially the EBIT margin in the tractor segment has still come down quite a bit, compared to the last quarter. So just wanted to understand, I mean, is it entirely driven by adverse mix? Or what has led to this decline in this quarter's margins for the tractor segment?
Yes. So I think -- as I have explained in the beginning also, the major impact is on account of mix because our sales volume in the sub 40hp category has actually moved up from 53% to 56% in this quarter. So that has an impact versus most of the sale which has happened and then those segments really typically are the low margin products unlike in the higher HP segment. So that does impact the margin significantly. And also pushes the material cost ratio if you look at even the financials from P&L side, the material cost movement at least on that account.
Okay. So for the annual basis do you think that should normalize next year?
Yes, assuming that mix doesn't deteriorate further, I think it is depending on -- like I said which states grow and which business grow. Typically if you grow in the states where the requirement is more for a higher HP tractor then obviously the impact is low. But if you really look at that whole rural bed states like UP or Bihar, Jharkhand where the growth is more in the lower HP side. So there obviously it does have an impact on the overall mix.
And our next question is from the line of Amyn Pirani from Deutsche Bank.
So my question is on the availability of finance at the dealer end for financing the inventory? After the NBFCs had started to see some pressure at the end of last year, there was some pressure inventory levels were rising, not specifically for you, but for the industry. So what is the situation right now? And is -- can that be a risk for volumes for next year whereas the availability of finance to dealers?
See firstly, for the industry, I don't think it is dependent on NBFC for dealer financing for their inventories, right? NBFCs are playing a very, very important role in retail financing, which is like when financing to customers they talk to dealers. So most of the channel financing is coming from banks, right? And of course, we have not seen any unusual phenomenon or any phenomena that would scare us in terms of dealer financing. But of course, it is also true that the industry has gone through 3 years of substantial growth. And therefore, from a working capital perspective, dealers always find them kind of caught up in a situation where they need more capital and it takes them longer time to kind of raise that capital. But other than that, there is no -- there is nothing that I mean, that we'd like to comment on this issue. But I mean this year, if the industry forecast is lower at 5% to 8%, I don't think that would be a problem. Actually, that would possibly going in favor of the industry from a working capital perspective.
The next question is from the line of Kushan Parikh from HSBC.
Sir, this is Vivek here. I just wanted to get a sense on dividend payout in the coming years. How do we look at it in these future years?
Regarding the overall if you look at the cash requirement for the company it is one, obviously, we explained the scenario which we are in today with the higher working capital, which has likely moved up significantly. I believe it will take 3, 4 month's time before we bring it down to this normal levels. And also I think for the next year, if you look at the requirement of cash, I think we have requirement of over INR 250 to INR 300 crores of CapEx was is in line with FY '20. And a part of it is a spillover from the last year in this entire capacity expansion on the machining side, which was supposed to happen last year, it didn't happen. I think that's got delayed and is not happening in this year. On top of it there is also investments which will happen in the joint venture that the company has entered into. So we have done some investment in last year also. So second, for installment or second phase of investment will happen actually this year will be close to INR 80, INR 90 crores which will go into these joint ventures. And then also, going forward, there's also some pressure from the government perspective. If you look at, there are some requirement, new requirement coming up on the MSME vendors front. So the government is pushing a lot to bring down the payment terms to the suppliers. And in our case, it's almost 250-odd suppliers are acting into this category. Where we were enjoying earlier the extended payment terms. So there will always be some working capital pressure, which will be there from these suppliers. And on top of that, we had issue with the GST refund, which was stuck now with the government quite some time. So as I mentioned, we had close to INR 177 crores as of end of March, which is recoverable from the government. So I think all these issues actually come together. So it's putting a lot of pressure on the cash side, especially in the next year and probably the year after. So I think these 2 years we think may be tough. Maybe FY '21 may not be that tough as for FY '20. So FY '20 we still see a challenge and therefore the overall meeting the entire cash requirement. But FY '21 may be slightly a decent year. And on top of that, we also have aspiration to look at some inorganic opportunities for the railway segment, which again will require some sort of cash for the system. So we think FY '20 will be quite tight bounce in terms of overall I think in the cash requirements. So that's why any further policy on the liberalizing on the dividend distribution side purely in this year looks very difficult. Maybe FY '21 onwards, maybe when the things ease out because most of these are onetime investment which are happening on the capacity front and may not be required going forward again for at least the next 5, 6 years. So maybe '21 onwards, we think that cash position will ease out and probably the company will be able to really reward the shareholders with a much better distribution ratio.
The next question is from the light of Sameer Deshpande from Fairdeal Investments.
Congratulations for the excellent results. And it is an auspicious day of Akshaya Tritiya. The company has posted highest-ever sales and profits. So I think the investment in gold should be discarded and investment in our company should be considered for long-term so that it will be a gold. Let us hope that your effort yield results for the next year going forward. I would like to know, mainly, we have sold our shares in Hughes communications for INR 63-odd crores. So actually, the cost in the balance sheet was some INR 45, INR 46 crores. So have we booked that property in other income?
No, so if we look at our policy, which is credit policy for the equity investment, any sale of the mark-to-market valuation for the equity investment actually is done through the balance sheet, not through the P&L. So the income actually was getting reflected in the other comprehensive income in the OCA below the profit line after the PAT which comes. So then the investment is actually happening on the balance sheet, but it's not a normal recurring income which is there which we would never wanted to use in the P&L side. So P&L likely should reflect the normalized business operation level and these are the income which normally are adjusted in the balance sheet itself. So whatever the book value was there, which is running about INR 45 or INR 46 crores, is that we have received cash of about INR 50-odd crores and the balance is still to come subject to the company getting the FDI approval for these investments from their foreign parent. So hopefully that will happen during this year and we will see the balance cash flow that will come in the company this year.
How much balance cash you still expect?
Overall we expect it to be somewhere close to I think another INR 10-odd crores.
And these other expenses have gone up by INR 23-odd crores in the Q4 compared to the last year as well as the December quarter? Is there any one-off in there?
So we can't say totally one-off. But yes, like I said, since there have been some consulting, which normally we are paying to the agency, which is what we are working now. So that's some contract which is continuing and it will continue at least the next year until FY '20 end. So those are the payouts which are happening and typically these are also linked to the performance and that is the share of market and the profitability. So we see the payout goes up as the market share also moves up, and we're seeing the market share was highest in this quarter. So linked to that is a variable pay out, so the impact has come into this quarter. And on top of that, we are also taking some provisioning for the inventories in this quarter because we actually came up with the new policy, which has been approved by the Board. Where we are taking now provisioning for the inventory based on the aging, which is on a very conservative basis compared to what we used to do earlier. So that also has an effect of about INR 16, 17 cores in this quarter, which has actually impacted the results. So actually if you take all of those initiatives which are now getting built into these prospectors, that has impacted slightly the margin overall.
So INR 16 crores, INR 17 crores is quite a large amount. So if that has excluded them, their impact on the margins will be actually nullified entirely [indiscernible] 25%.
Surely.
Last one is, do we expect to outperform the industry -- tractor industry this year also, which we have been doing for the last 2, 3 years?
Yes Sameer, this is Shenu. I mean we really hope so, but we will continue to do it and not just because we have been doing it so far but because we have some very fundamental initiatives in place, which we have spoken about in the past, both on the distribution side and on the product side. So we are very hopeful that we will continue to beat the market this year also.
The next question is from the line of [ Jer Mehta ] from Edelweiss.
This is Chirag here. Sir, just one question. On the demand side, is it possible to indicate how the demand breakup between new and replacement demand? Any color you can share? And which segment has seen...
Yes. I'm sorry, go ahead, please.
And which segment has seen a major slowdown between new and replacement?
So replacement is now of course is rising and it will continue to rise as we go forward because I mean the more and more we reach the levels of saturation in the industry, of course, we'll have much more replacement that arise. I don't think there has been like a very, very significant shift. And it's a very, very slow phenomena. So it will happen over a period of like 5, 6 years when we will see like 2%, 3% shift in replacement versus new because the industry is far from -- and we believe the industries far from saturation. And therefore, it's a slow phenomenon right now. But it is increasing gradually and it will continue to increase. Now some markets, which are very, very mature, for example, like Punjab and Haryana in terms of tractor penetration, of course, about, maybe about 80% of the demand is replacement demand. While some of the markets, which are very virgin right now for example, like Chhattisgarh, Odisha East and some of the North East the replacement demand is low as 30% to 40%. And so, yes, I think this phenomenon is going to continue, that it's going to grow a little bit slow until we reach more saturated levels in the industry.
And both segments have seen similar slowdown or it is driven more by the new demand?
I mean slow down, like I think is very temporary right now. And March and April pretty much, and we can count maybe quarter 4 until quarter 3 until things will be balanced. So it's hard to say what it is. We don't have data to share right now on this. But maybe separately I can look at the data and respond to you.
Yes. And just one clarification. You indicated on this 5% to 8% growth. If you look at the some of the regions, like West and South, even if we have a reasonable monsoon are unlikely to see a recovery. So are you making this case that the regions could grow in a strong double-digit and hence, the average growth of 5% to 8%? Is this the way...
So definitely, definitely. Yes, definitely. So if you look at last -- I'm sorry, yes?
And just so -- and would it be a right statement that South and West may not see a further decline in sales? Is that a base case that we should work with or the -- or if monsoon is weak or even if it is a normal monsoon, sales could be lower than this year in South and West%?
Yes. So I -- if you look at the figures in the last year, I think we have also shared it in the opening statements that overall, the market is growing in India by 8%, while North and Central grew by 13% and the South and West grew by about 2% or 3%. So we think -- I mean the same kind of distribution will continue to happen for this year also at least in FY '20. But FY '21, the situation could be different. South and West could be more prominent in terms of growth if we have a good monsoon this year.
Next question is from the line of Harshal Agrawal from CRISIL.
Sir, I am eager to know your guidance for the exports for the tractor industry in this fiscal and which markets will rise the growth for the industry and what other factors can aid the growth?
So this last year, FY '19, the growth in the export industry is about 4% to 5%. While of course we have grown by a much larger percentage. And that is only because we are sitting on a very, very low base. So going forward, I think we will see possibly a similar amount -- a similar kind of trend of growth in overall export industry out of India. Now again since we are at a very low base of about 3,000 tractors versus last year. Our ambition to grow is much more higher. We have shared with you in the past that the company has invested a significant amount of resources in creating our export product lineup which is now pretty much ready. And now therefore the focus has for the last few months have shifted to expanding our distribution in import and export markets, which we are continuing to do. So definitely we'll grow much, much, much better than the industry grows. And hopefully, as per our Vision 2022 document, we hope to reach a figure of about 10,000 by 2022. So in light of that we hope we will do somewhere close to 4,500 to 5,000 tractors this year.
And which markets will actually drive the growth for the industry?
There are a couple of, actually, focus areas where we will drive in these volumes. One of these is Europe, where we've been driving some volumes. You are also aware about our relationship with Kubota. Where we are trying to utilize some of Kubota's international or overseas network to drive our exports volume. So a lot of these factors are going in favor of us on new product line, better distributions outside India and of course this relationship with Kubota, all these will have to garner some numbers in export volumes.
Ladies and gentlemen, we will take the last question from the line of Mumuksh Mandlesha from Emkay Global.
Raghu here again from Emkay. I just wanted to understand on the new products such as the Atom Series and the rice specialist tractor, how much was the volume in FY '19? And how do you see the improvement going forward?
Sorry Raghu, I don't have the volume breakdown, maybe Bharat if you can help with that. But definitely, these are the markets that we have just entered and we were one of the late entrants in these markets, as you know. And, therefore, we will continue to see a substantial growth in these segments going into this year and also in the future. Prateek do you have any these numbers?
In Atom, we did about 1,000 plus tractors in FY '19 on a full year basis. Which is the other one you said?
Rice specialist tractor?
Rice specialist is still under field trial, so there is very small volume running this year with only 40 or 50-odd tractors.
Understood. And that should increase substantially because I think the rice market, as you had previously indicated was as large as 1 lakh units per year?
Yes, rice market is pretty large but this is a very unique tractor. You know, I mean this is kind of a tractor that is not available with all the manufacturers right now, this is a very lightweight kind of a tractor, we call it crossover because it's kind of a mix of very specialty rice tractor versus the normal utility tractor. So we are very, very careful with these tractors because it also means that we have to change some tractor sales on the ground. We have received very, very positive response from this in many parts of the country, and we are going to continue to promote this concept of this new kind of a rice tractor. Now as far as compactor is concerned, that market is definitely quite large now. Although last portion of this basket is in Maharashtra which has not improved a very good base of growth. But still, since we are a new entrant we have a huge opportunity to kind of expand our volumes.
Some clarifications. One is on the gross margin side, there were some improvement Q-on-Q on the gross margin. What has led to that, sir?
Are you saying for the quarter or...
For the quarter, sir, for the quarter, if I take Q-on-Q basis raw material to sales, there is some improvement Q-on-Q. What has led to that?
I think this is your data, it was the end of last quarter. I think November we take in the price increase to cross on the inflation. So actually in this quarter the full impact was there and there's no further inflation in this quarter. Which is why I think the better material cost ratio in this quarter compared to the situation in Q1.
And on the construction equipment side, the Q-on-Q increase in realization. What would be the contribution of price increase in that, because the remaining part I understand is the mix which is favorable. But how much price increase is there in construction equipment?
The increase in the range of 4% to 5% which was basically like you said the lag effect of inflation which has been there, which we're not able to pass on. So with this price increase we have been able to neutralize that impact early on the commodity prices.
Understood, sir. And, one more clarification, the GST refund that would be part of the current assets right -- other current assets item?
That is right. Yes.
Got it. And just one last clarification. On the investment side, Kubota investment was at INR 1.2 billion and Tadano was at INR 0.3 billion. So how much has been done in FY '19? And how much is expected in FY '20?
Kubota we've done 50%. So INR 60 crores had gone last year in March. And INR 60 crores will go in this fiscal year FY '20. On Tadano, our initial investment was it was about INR 60 crores, out of which our share was roughly INR 30 crores which has gone last year. But there is some product preponement which they are looking at so there is some more capex, which will be required to about INR 20 crores they have projected further for the JV out of which our share will be worth about 50%.
And for CapEx, was expected at INR 2.5 billion to INR 3 billion in FY '20. What would be -- how would be the breakup of that CapEx?
Well I said the major CapEx was actually the deferral of the machinery capacity expansion, which we scheduled to happen last year. But we have placed the order slightly late. And also looking at the kind of requirement which we had so it got slightly delayed. So that roughly close to INR 80, INR 90 crores which will likely get spend in this year. And then there is investment which is been done so there is a normal CapEx of about INR 60, INR 70 crores across all 3 business which is there. And there's some investment which we are doing on the product side, especially on the emission norm changes which are happening now. Since we are moving to the euro 4 or the Bharat Trem IV norms for both construction as well as for the tractor business. So that investment is ongoing. We also looking at some revamp for the entire product portfolio in the looks and design and the feel. So that again will need a lot of ruling investments and it's more on the tractor side. In the Construction and Railway side, we think it will be somewhat close to INR 30 crores to INR 35 crores and balance is more in the tractor side.
And BS4 will come from April 1, right?
It's October 2020.
October 2020.
On the higher HP models. 50 HP model.
Construction equipment only, right?
Both.
Both? Understood. And what about the entire portfolio?
There is no date for that yet. The only date we have right now from the government is October 1, 2020 for Class -- for diesel engines about 50 horsepower.
Ladies and gentlemen, that was the last question. I now hand the conference over to Mr. Bharat Madan for closing comments.
Thank you, ladies and gentlemen, for being present on this call. For any feedback and queries, please feel free to write into us at investorrelations@escorts.co.in. We'll meet again the next quarter. Thank you very much, and have a very good evening.
Thank you. Ladies and gentlemen, on behalf of SPA Securities Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.