Escorts Agri Machinery is fast transforming to become a customer-centric company, which understands the multiple nuances of the agri business and the diverse needs of the farmers. This new approach of becoming a provider of crop solutions rather than a manufacturer of tractors has found success in the Indian market. The International Business division of the company is now trying to replicate the same approach across global markets. Will it succeed?

Indranil Das & Anupama Polasa | October 2016 Issue | The Dollar Business

As we stopped by-passers to ask directions to the Escorts Agri Machinery's manufacturing plant in Faridabad, we were cross questioned by them – which plant? Pertinently so. Escorts Agri Machinery, a part of the Escorts Group, a leading engineering conglomerate, has three plants spread across the industrial cluster of Faridabad. And all of them are enormous in size! But you would probably expect that from a manufacturer of giant 110 HP tractors. Had we not seen the rows of blue and yellow tractors on our approach to Plant 2 of Escorts Agri Machinery, we would have never realised that inside this sprawling green campus, the company has its Tractor Assembly, Transmission and Engine Plant. More of the familiar blue tractors awaited us as we made our way to the office of Rajiv Wahi, Head-International Business, Escorts Agri Machinery (EAM) for a discussion on how EAM is transforming itself from a manufacturer of tractors to a global provider of end-to-end “crop solutions products and services”.

Turning Around

Once India’s blue-chip engineering company, Escorts has over the years exited businesses like motorcycles, telecom and healthcare. It had also lost market share in tractors. But it seems that under the guidance of Nikhil Nanda, Managing Director, Escorts Group, the company is on the verge of a turnaround.

Profit before tax (PBT) had peaked in FY2014 to Rs.272 crore, before dropping to Rs.68.25 crore in FY2015. The company posted better results in FY2016 with a PBT of Rs.91.87 crore – a growth of 34.61% y-o-y. Escorts also reported an increase in net profit by 33.5% at Rs.47 crore in the quarter ending June 2016 against Rs.35.2 crore in quarter ending June 2015. Escorts' turnover too increased correspondingly by 9.3% to Rs.1,051.4 crore in the quarter ending June 2016, as against Rs.961.4 crore in quarter ending June 2015. These were unmistakable signs that the company is poised for a brighter future.
To focus on its core strengths, Escorts has in August 2016 divested from the automobile parts business. Pune-based Badve Engineering Limited bought the business in an all cash deal. As for Escorts Agri Machinery, tractor volumes in the quarter ended June 2016 went up sequentially by 38.4% to 16,363 tractors against 11,823 tractors in the quarter ended March 2016 and was correspondingly up by 10% against 14,875 tractors in quarter ended June 2015.

EAM expects to clock good growth in the high teens on the back of a good monsoon this year too. To add to this, the company has been in the news lately for the right reasons, having launched a slew of new tractors – 13 to be precise, in July this year. The new tractors across existing flagship brands Powertrac, Farmtrac and Euroline range from 12 HP to 110 HP, and were introduced to cater to global markets. It also announced a new strategic approach of ‘Global Transformation Vision 2020’ to strengthen its market share across the globe. On the occasion of the launch, Ravi Menon, Chief Executive Officer, Escorts Agri Machinery said, “Escorts Group has been a witness to the transforming agricultural ecosystem since seven decades and understands the ever evolving needs of the farmers worldwide. We are committed to taking India’s best to the world and the launch of these new tractors are a manifestation of our belief in the 'Make in India' mission. The Escorts group already has a strong foothold across continents and our new transformation vision will further enable us to strengthen our leadership across North Africa & South Africa, America, Europe, and the ASEAN region.”

Stock markets have also reacted favourably to the company’s new initiatives, with shares touching a high of Rs.393 in September 2016 from a low of Rs.112.70 in February 2016. Escorts it seems is the new darling of investors. Rakesh Jhunjhunwala, the bull of the Indian stock market, raised his stake in the company to over 8% in March 2015 and Goldman Sachs India Fund acquired a 2.67% stake in the same financial year. Jhunjhunwala buying a significant stake is obviously a great endorsement for the company’s growth outlook.

New Vision

Escorts Agri Machinery no longer wants to be known as a manufacturer of tractors. In line with Nanda’s vision of being ‘customer-centric’, the company is transforming itself into an end-to-end provider of crop solutions. Sounds interesting. But what does it really mean?

The company believes that to sell tractors, one needs to understand the end-user. This approach is an integral part of the ‘Global Transformation Vision 2020’. To achieve this end, EAM is developing application specific products and solutions for both farm and non-farm segments. Interestingly, about a third of tractors sold in the country are also deployed for non-farm commercial applications including construction and infrastructure development work. The rural infrastructure projects of the government augur well for tractor sales. Farm usage of tractors being seasonal in nature, these rural infrastructure projects help farmers utilise tractors optimally and this has been one of the reasons for the spike in demand for higher horsepower tractors in recent years.

While Escorts traditionally has had a strong presence in northern and central India, it has enjoyed little visibility in the South and West regions. However, in the last two years EAM has been busy creating product applications to suit the requirements of the southern and the western regions of India. The goal is simple – to achieve a pan India presence, and then have a global footprint.

The Range

In keeping with its ambitions, the company has spruced up its product range as well as its distribution network in India and abroad. According to Wahi, about 60-70% of Escorts’ tractors are also used for non-agricultural purposes, and the company is developing products according to the needs of the customer. For instance, the premium Farmtrac range of tractors is equipped with modern engineering and machines with extreme power and traction, and is available in the range of 37 HP to 75 HP. It is a high performance, versatile rugged machine with maximum comfort for the driver. Farmtrac caters to the high-end Indian market and aims to satisfy the European market with even greater horse power, which can go up to 110HP. 

Within the Farmtrac range is the Executive series that, as its name suggests, caters to modern Indian farmers. The Executive series claims to speed and ease operations, reduce dependency on labour, and at the same time save costs both in terms of time and money. The Powertrac series on the other hand is aimed specifically at Indian farmers who use their tractors for multiple purposes.

Whether it is custom-hiring or usage in alternate commercial applications, Indian farmers are increasingly looking at avenues to take the maximum out of their tractors. These practices require tractors to be able to work for longer hours, operate heavier and bigger implements, and consume lesser fuel. With this in mind, Escorts introduced the DS (Diesel-Saver) which aims to minimise fuel costs without compromising on the power. Giving an example of how much 'more' customer-oriented the company has become in the past two years, Wahi points towards India’s first ‘anti-lift’ tractors that were introduced by Escorts in 2015. On the uneven tracts of India, we often get to see tractors standing on their rear wheels with the front wheels up in the air. To address this, Escorts introduced the ‘anti-lift’ tractors, part of the Powertrac series, with specially designed front bumpers, increased wheel base, heavy front axle, stiffener bars and plates shifting the center of gravity and hitch point forward, thereby improving the front lift resistance of the tractors.

The company has also brought to India the Ferrari range of specialty tractors from Italy. These tractors with four equal-sized wheels, four-wheel drive and an oscillating chassis system, are aimed at the needs of Indian orchard and vineyard owners.

Going Global

Though Escorts has been present across all major continents for long now, exports accounted for a small percentage of sales. But things are about to change in a big way. Wahi says, "We want global operations to contribute to at the very least 33% of our business by 2020. Setting up regional hubs in Europe, Brazil, Africa and ASEAN, revamping our construction and training facilities are all part of this vision. We want training to be a differentiator as far as competition is concerned.” With this in mind the company has joined hands with both private players as well as governmental agencies in Africa to spruce up its global distribution network.

Escorts, according to Wahi, has the largest network in Africa amongst all players in the industry and is the clear market leader amongst all Indian tractor manufacturers in West African countries of Ghana, Burkina Faso, Senegal, Benin and Togo. Recently, the company supplied 1,000 tractors to the Nigerian Government. It also successfully executed the world’s largest single deal of tractors in Tanzania, for about 2,000 tractors and 6,000 implements, irrigation pumps, tillers etc. Wahi says the company's global strategy too is to be customer-centric and deliver products that are required by the end-user. “In Africa, our tractors have inverters that generate electricity. This is used for lighting up street lights in small towns. So, the focus essentially is to find new uses and applications,” explains Wahi. A nice touch of innovation, you'd reckon.

In 2005, Escorts acquired a 100% stake in its Polish joint venture Farmtrac Tractors Europe. The facility has given a distinct advantage to Escorts over its Indian counterparts in the European market with an established and homologous product. The company is now focussing on training and development of dealers and distributors from across the globe to gain a foothold in the exports market. Wahi believes that training also needs to be customer centric and therefore the company has prepared country specific training modules. He wants the distribution network to work with end-users in the respective countries to gain their trust and confidence.

While the company is looking to expand its footprint in Asia and Latin America, the focus is clearly on Africa, for it offers a huge opportunity. While the Indian market for tractors is about 500-600 thousand units per annum across 53 countries in Africa, the market is still a miniscule 30,000. This despite the fact that the continent has a landmass that is nine times that of India's. This opens up enormous potential for agriculture solutions providers, and Escorts is leaving no stone unturned to tap the potential and is leveraging its presence in Africa to gain momentum.


The company's marketing strategy too is region-specific. Giving an example of region-specific marketing in Tanzania, Wahi says, “Recently we developed a three-minute animated corporate film for the Tanzanian market which had a voice-over from an African. This made it relatable. We are doing the same for South-east Asian markets.” The company sure has taken the customer-centric vision of Nanda to heart.

A Step Towards Glory

As Wahi gives us a walk around of the engine and transmission assembly  facility, we watch in awe as engine, transmission, mammoth wheels and body parts come together in perfect synchronisation and a fully built tractor is driven out of the assembly line. The factory is noisy and warm, but that does not affect the diligence of the workers and supervisors as they bring a tractor to life!

We are told that this is but only a third of the entire factory, and a day is just not enough to take a tour of the complete facility.

As we complete our tour of Plant 2, we see officials from Japan enter the facility to take stock of the quality of the assembly line. As we say good bye to Wahi and leave through the parking lot we see hundreds of cars in the lot and that gives us a sense of the number of employees that depend on Escorts for a living. The strategy of customer focus seems simple at the outset, though we understand that implementation across borders may not be as simple. But the success stories in Africa leave us with a feeling that Escorts may be able to turn around the clock and once more become the engineering giant that it once was. The numbers for August 2016 are in and show a 55% growth in domestic sales and 17% growth in exports corresponding to the same period in 2015. While unit values in exports from the Indian facility still remain insignificant, Rajiv Wahi's confidence in his people and products coupled with the focus on key export markets like Africa and Asia give us hope that exports from Escorts Agri Machinery may soon be able to meet the target of generating a third of the total revenues of the company.

The campus, men-in-charge, facilities, dependence on R&D and innovation, passion and profesionalism, scale of global dreams...somewhere you still do see Escorts walking back into its proud shoes of the past – more disciplined, more focussed and this time, a global brand for real. For those who've forgotten the company, its U-turn has already happenned. And it's on track to earning a bigger 'global' reputation for itself this time. The question is not 'whether it will', it's 'when'.

Meet Wahi, get lucky to visit its factories, learn of Nikhil Nanda's gameplan and see the innovative excitement at Escorts – you'll learn how turnaround stories are scripted.

“ABOUT 33% OF OUR REVENUES WILL COME FROM Global Operations”

 

Rajiv Wahi Head - International Business, Escorts Agri Machinery

TDB: Let us dart across to the first question; a light one at that – Escorts was the tractor brand visible in the Bollywood movie Sultan? It seemed like a very well planned marketing strategy. Your take on this.

Rajiv Wahi (RW): Well, we got a very good response. This happened because the theme gelled well. We were essentially positioning Escorts as the Sultan of agriculture – strong, reliable and durable. Salman Khan has a mass appeal and therefore our brand association with this blockbuster reiterated our reckoning with the masses.

TDB: What about future marketing and branding strategies with respect to international markets?

RW: It is necessary to be country specific or region specific when you talk about branding. The ‘one product fits all’ strategy has to be avoided not just when you are developing products for customers but also when you are working on your branding initiatives. For instance, when we develop corporate films for European countries we do need to play close attention to technology, features, background, legacy, etc. However, while addressing an African country, the attention shifts to things like cost-effectiveness, simplicity of use and easy availability. Recently, we developed a three-minute animated corporate film for the Tanzanian market which had voice-over from an African. This made it relatable. We are doing the same for the South-East Asian markets.

TDB: Are your products getting good traction in Africa?

RW: I would say that Africa has a lot of potential. Its population of 1.2 billion equals India's. The interesting bit, in terms of potential, is that its landmass is nine times that of India's. One has to realise that cultivable land in Asia and Europe is getting exhausted. Moreover, the world population is likely to increase to 8 billion by 2020. In view of this scenario, the challenges of global food security are bound to deepen. This is where Africa comes to the limelight (it has enormous scope in terms of cultivation). Currently, while about 600,000 tractors are annually sold in India, only about 30,000 tractors are sold in Africa.

TDB: What is your selling strategy when it comes to emerging markets? Is it a 'make, build and sell' strategy or an 'export to sell' strategy?

RW: Our expansion across international markets is spurred by the fact that our products have presence across sectors. And we definitely follow the first strategy, for we believe in supplying products that have international standards and local relevance. For instance, in Africa we have an assembly plant and a training and service centre. The four zones of Africa (north, west, east and south) have a distinct profile of people and farming practices. Therefore, realising this, we are establishing assembly and manufacturing, support and training units specific to these zones.

TDB: What would you say about the political issues of Africa? Does the forex crisis come in the way of your expansion strategy?

RW: Financing is a major challenge in countries across Africa. Dollars are actually only available in the black market and not in banks. However, by adopting a consortium approach, where we join hands with the existing big business houses of the country and address a group of countries, we can definitely retain our competence.

TDB: And what about Latin America?

RW: We have had a presence in Chile for the last 15 years. A range of products with a high horse power is the requirement of this region.

TDB: What challenges do you face while catering to more sophisticated and developed markets?

RW: These countries are still apprehensive of the ‘Made in India’ tag. The challenge for us is to qualify in terms of the parameters that certify (for quality) and benchmark their products. There has to be strict adherence to quality emissions, compliance and safety. And these are determined by the individual countries. For instance, Europe has a unique set of compliance norms.

TDB: What kind of revenues do you expect from exports?

RW: We have a roadmap for 2020. We want global operations to contribute to at least 33% of our business. Setting up regional hubs in Europe, Brazil, Africa and ASEAN (we propose to set up one in Thailand or Myanmar), revamping our construction and training facilities are all part of this vision.

TDB: What about innovation as far as your global portfolio of products is concerned?

RW: We want to be reckoned for our technology-driven innovations. Interestingly, 60-70% of our tractors are also used for non-agricultural purposes. For instance, in Africa our tractors have inverters that generate electricity. This is used for lighting up street lights in small towns. So, the focus essentially is to find new uses and applications.

TDB: How would you rate your company's performance in the last fiscal, particularly in terms of exports?

RW: Qualitatively speaking, I would say that we have been on track. Our product development team has been revamped and aligned to address the emerging trends and challenges. We are sure the numbers will follow.

TDB: How about investments in R&D?

RW: Our R&D division is one of the best in the industry. Approach and techniques are of international standards.

TDB: Any plans to enter China?

RW: Incidentally, China has a large consumption capacity for power tillers, about two million units. Utility tractors come a close second. Given the lucrative scope, there are plans on the anvil. Moreover, China is going through a phase of agricultural transformation – rural to urban land consolidation is happening. Overall, their demands for high horsepower tractors are on a upwards spiral, thereby translating into a good business opportunity.

TDB: What are the products that you are focussing on in terms of exports?

RW: We want to differentiate ourselves amidst the competition as an agricultural solutions provider. Hence, we are concentrating on products that assist the entire cultivation cycle.

TDB: What would you say about commodity price fluctuations? How do you deal with them? What about ravages of monsoons in India?

RW: As far as price fluctuations are concerned, one has to be pragmatic and adopt a strategy of diversification in terms of the product range. If you do this, you can tide over the uncertainties that are bound to plague all crops during the cultivation cycle.

As far as monsoons are concerned, I would say the situation has not been that good in India for the past two years. Also within India, cultivation is gradually shifting from the northern and western hinterlands to the southern and eastern states. These are times to develop the weak markets into opportunity markets.

TDB: What has been Escorts Agri Machinery's biggest strength?

RW: Our people coupled with our transparent and professional work culture have been our biggest strength. Our people are also exposed to the ground realities of the international markets that we operate in. This is a huge asset.

TDB: If an Australian customer happens to sit across to you, how will you convince him to buy your tractor?

RW: I would not initiate the conversation to sell my tractor. Instead, I would understand his psyche and the socio-economic dynamics in which he operates. It is important to identify the gaps of the existing farming solutions at his disposal. Because that is where my opportunity lies. It is also important to understand the gaps in my own product strategy in order to initiate an intelligible and convincing conversation about purchase.

TDB: Do Indian farmers require education and training?

RW: It is obvious that they do, given the conundrum that we witness – agricultural productivity is not at par with our volume of sales. Agricultural institutes need to step up to the challenge and implement training programmes at the ground level.