INSUBCONTINENT EXCLUSIVE:
The gain was over and above the 3.5 per cent drop in the stock price soon after the JV was announced
the stock.
Kubota will have equity participation of 60 per cent in the JV to set up a plant with a capacity of 50,000 units per year for a
total investment of Rs 300 crore
Of this, Escorts will invest Rs 120 crore and also provide the land
possibility of higher payment by Escorts on each tractor procured from the JV
However, it was put to rest after the management clarified that no top-up margin on such tractors will be paid
the JV.
A major benefit of the JV is that Escorts will add more capacity at lower capital expenditure
Given the massive cyclicality in the tractor volumes, contract manufacturing will help the company minimise business risk during the phase
Also, during a rising demand scenario, it can quickly ramp up production by increasing the proportion of its requirement from the JV.
The JV
production will be mainly catering to the high-end (more than 40 HP) segment and in the later stage can be used for lowerend tractors
Kubota will benefit from low-cost manufacturing as it sales nearly 10,000 units a year in India, which are imported currently from Thailand
Escorts exported 2,000 units in FY18
It plans to export 8,000-10,000 units by FY22
Indian companies exported nearly 80,000 tractors in FY18
Exports grew 6.4 per cent annually in the past five years
Typically, the realisation from exports is higher compared with that of domestic sales.
The joint venture will develop new products for the
echnical expertise by manufacturing globally competitive products
The co-developed products may focus on 30-50 HP segment to target southern marts of India where Escorts has a low market share.
At
compared with the five-year average of 13.7.
