Escorts Mar 17 2020 Spark

ESCORTS
Initiating Coverage
March 17, 2020
 MUKESH SARAF  [email protected]  +91 44 4344 0041

 RAMAKRISHNAN SESHAN  [email protected]  +91 44 4344 0020
Page
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ESCORTS CMP Target Price Rating
Rs. 634 Rs. 880 BUY
Indian Automobile Sector – Initiating Coverage
Escorts (ESC) is a sizeable player in the domestic tractors space (market share of ~12% in YTD20) and derives ~77% of its revenue from this segment (FY19). It is a
dominant player in the cranes sub-segment of the construction equipment industry (~40% market share), besides having a limited presence in the backhoe loaders’
and compactors’ sub-segments. The construction equipment division contributes ~17% of revenue. ESC also supplies braking systems, suspensions and couplers to INITIATING COVERAGE
the Indian railways; this division contributes ~06% of its revenue. 17 March 2020
Through new product introductions and channel investments, ESC aspires to increase its domestic tractor market share to ~15-16%, and its export volumes to 10k
units p.a. (~4k in FY20E), also aided by its JV with Kubota (Dec-18). In the construction equipment segment, ESC plans to enhance its play in the higher capacity Industry AUTO
cranes segment through new product introductions and its JV with Tadano (Aug-18). In the railways space, ESC has won approvals for new braking technologies, CMP Rs. 634
which are progressively contributing to incremental revenue.
Over the last two decades, ESC has made concerted efforts to divest interests in non-core areas (2Ws/auto-components/telecom/hospitals) while strengthening its Target Price Rs. 880
presence in the tractor/construction equipment and railways segments through acquisitions/tie-ups. Consequently, non-current investments as % of capital
employed have reduced from ~33% in FY00 to ~15% in FY19. Additionally, over the past few years ESC has endeavored to reduce operational costs (in line with Key Stock Data
peers) by launching various programs and has met with a fair degree of success. Bloomberg ESC IN
 Domestic tractor industry poised well for growth in FY21E; barring cyclical aberrations, farm mechanization levels have a long growth runway: Post a degrowth of
~6% in FY20E, expect ESC’s domestic tractor volumes to register a 7% CAGR through FY20E-FY22E. Positive triggers include a) record reservoir levels (62% in Mar 20, Shares o/s 89 mn
compared to 5-year avg. of 33%)… b) …auguring well for the upcoming kharif harvest in FY21E, which coupled with robust growth in rabi sowing and MSP hikes in
FY20E/firm agricultural commodity prices bode well for growth in farm income c) increased budgetary allocation for PMGSY and PMAY (Rural) in FY21E aiding revival Market Cap Rs. 56 bn
of non-agri tractor demand. While the PM Kisan largesse might, by itself, not have a material impact on incremental tractor volumes, state specific farm loan waivers 52-wk High-Low Rs. 914-423
and direct support schemes could have a positive rub-off on tractor demand.
 Plugging of tractor portfolio white spaces and investments in dealership networks in opportunity markets expected to yield results over the near to medium term; 3m ADV Rs. 3 mn
material benefits from the Kubota JV may be long drawn out: ESC’s market share in key opportunity markets of the West and South (~35% of industry volumes) has
increased from 4.3% in FY14 to 6.8% in YTD20. ESC has ~25% of its overall dealerships in these markets, and these currently contribute only ~19% of its volumes. Avg. Index BSE 500
volumes per dealership in these markets was ~54 (YTD20), compared to pan-India average of ~70, indicating that the maturity of these dealerships could enable
market share gains over the medium term. ESC witnessed a slew of tractor launches through FY15-FY18 across HP categories, which enabled it to fill white spaces and Jun-19 Sep-19 Dec-19
gain market share. Over the near term, ESC is expected to launch face-lifts of its Farmtrac portfolio.
 Under the Kubota JV, ESC is setting up a 50k units p.a. tractor manufacturing facility, to be sold by both through their respectively channel network in India, in addition Promoters 40.3 40.3 40.3
to jointly developing new products to cater to India and overseas markets. Kubota would export ESC tractors through its global distribution network in specific markets Institutions 25.9 26.6 26.9
–, we believe that these volumes would gain material traction only over the longer term. Expect export volumes to growth at a CAGR of 11% through FY20E-FY22E.
 Construction Equipment Segment: Growth in construction equipment industry is dependent majorly on road construction and mining activities; with muted road Public 31.3 30.7 30.3
construction awarding in FY20E, road construction in FY21E could be muted, possibly impairing industry volume growth. While ESC would benefit from the 49% JV with Non
Tadano and the subsequent foray into higher capacity cranes, we believe that the limited size of this market (~Rs. 4bn p.a.) and presence of established players could Promoter- 2.5 2.5 2.5
preclude material market share gains/incremental revenue. Expect construction equipment volumes/revenue to grow at CAGR of ~3%/8% through FY20E-FY22E. Non Public
 Railway Equipment Segment: ESC majorly supplies braking/suspension systems, the demand drivers for which include new rolling stock additions/new-age train
Pledge - - -
launches as well as replacement of existing technologies. Key new products recently approved include the axle/bogie mounted air brake system. These products
currently contribute ~45% of revenue for ESC. Currently, axle mounted brakes exhibit relatively higher import content which ESC plans to localize with results expected
in FY22E and beyond. With continued focus on safety and modernization, we believe that ESC revenue in this segment would register 17% CAGR through FY20E-FY22E.
RESEARCH ANALYSTS
 Cost reduction/containment efforts have paid rich dividends: Margins improved from an avg. of 5.5% (FY08-FY16) to ~11.3% in FY20E. Various initiatives like Project MUKESH SARAF
‘Shikhar’ aimed at reducing RMC, efforts to right size employee costs through VRS schemes and other cost reduction initiatives have aided margin improvement. [email protected]
 Expect revenue/EBITDA/PAT growth CAGR of 10%/13%/16%, respectively through FY20E-FY22E. RoCE is expected to continue to be strong at ~22% led by low WC days
+91 44 4344 0041
and high asset turns. Through FY22E, strong free cash generation would result in net cash levels of ~Rs. 15bn, compared to Rs. 6bn as at FY19.
 Initiate coverage on ESC with a BUY Rating with a TP of Rs. 880, basis 12x FY22E EPS. Our multiple factors in 1) expected uptick in tractor volumes over the near RAMAKRISHNAN SESHAN
term and underpenetrated mechanization levels in India, ensuring a longer growth runway 2) continued robust growth in the railways segment led by traction in [email protected]
new products and margin benefits from localisation efforts 3) strong, debt free balance sheet, bolstered by robust return ratios and cash flow generation. +91 44 43442 0020
find SPARK RESEARCH on Bloomberg [RESP SPAK <go>] | FACTSET | REFINITIV EIKON Page 2
Escorts – Initiating Coverage
Snapshot of Financials
Financial Summary (Standalone)
Year Revenue (Rs. mn) EBITDA (%) PAT (Rs. mn) EPS (Rs.) RoCE (%) RoE (%)
FY19 61,964 11.8% 4,849 54.6 28.9% 17.4%
FY20E 60,614 11.3% 4,859 54.7 22.1% 15.0%
FY21E 66,101 11.8% 5,627 63.3 22.5% 15.1%
FY22E 73,593 11.9% 6,510 73.2 22.4% 15.2%
CAGR: FY20E-FY22E
• Revenue: 10%
• EBITDA: 13%
• PAT: 16%
Page 3
Company Factsheet
Corporate Factsheet
 ESC is one of India’s foremost tractor manufacturers, offering more than 225 variants (12 to 75 HP) in the domestic market under three marquee brands,
Farmtrac, Powertrac and Steeltrac. Additionally, it offers crop solutions, engines, spare parts and lubricants, SHIP (Sprayers, Harvesters, Implements and
Planters) and gensets. ESC is a dominant player in material handling, earth moving and road construction segments of construction equipment. ESC is among
the world’s largest manufacturers of Pick and Carry (PnC) hydraulic mobile cranes. ESC manufactures advanced components for Indian Railways, including
Company &
brake systems, couplers, suspension systems, shock absorbers and rail fastening systems, among others.
Promoter
 Mr. Yudi Nanda & Mr. HP Nanda founded Escorts (Agri Machinery Ltd.) in 1948. ESC is currently helmed by Mr. Nikhil Nanda (grandson of Mr. HP Nanda). Mr.
Background
Nikhil Nanda joined Escorts as Director, Business Development of Escorts Yamaha Motor Ltd. (EYML) in 1998. Mr. Nanda served as Chief Operating Officer
from October 2005, then as Joint Managing Director of Escorts Ltd. from September 2007 when he became Managing Director of Escorts Limited in
September 2013. He was appointed Chairman on 7 August 2018 after the death of his father, Mr. Rajan Nanda. He is an alumnus of Wharton Business School,
USA, with majors in Management and Marketing.
 ESC has 3 tractor manufacturing plants in India (Faridabad, Haryana) with a capacity of 1 lac units p.a. and 1 in Poland with a capacity of 2500 tractors p.a. ESC
is in the process of setting up a plant under a JV with Kubota in Faridabad with a capacity of 50,000 tractors p.a.
Operational  It manufactures construction equipment at its plant in Faridabad, Haryana with a capacity of 10,000 units p.a. It is setting up a plant in Faridabad under a JV
Footprint with Tadano.
 Its railway equipment division manufacturing facility is located at Faridabad, Haryana with an Annual production capacity of 13,200 couplers (AARH and
Shaku), 18,000 air brakes, 2,400 EP brakes, one million brake blocks and 50,000 shock absorbers
Revenue profile
 In FY19, ESC derived ~77%/17%/6% of its revenue from the agri machinery/construction equipment and the railway equipment segments respectively.
(FY19)
 Mr. Nikhil Nanda Chairman and Managing Director
 Mr. Shailendra Agrawal Group Chief Operating Officer
 Mr. Shenu Agarwal Chief Executive – Escorts Agri Machinery(Sales & Marketing and Emerging Businesses)
Top Management
 Mr. Ajay Mandahr Chief Executive, Escorts Construction Equipment
& Board of
 Mr. Dipankar Ghosh Chief Executive, Railway Equipment Division
Directors
 Mr. Amanpreet Singh Bhatia Group Chief Human Resource Officer
 Mr. Bharat Madan Group Chief Financial Officer
 Mr. Ajay Sharma Group General Counsel & Company Secretary
Credit Rating  ICRA AA-/Stable/ICRA A1+
 IDBI
Bankers
 SBI
Auditors  M/s Walker Chandiok & Co LLP
Source: Company, Spark Capital Research Page 4

Over the last two decades, ESC has divested non-core businesses while strengthening investments in the tractors and construction equipment
segments
 Acquired 49% stake  Sold 26% stake in  Divested 60% stake in Escorts Claas  Divested  Sold cellular service  Divested  Acquired 15%  Sold stake in
in Farmtrac Tractors JV with Yamaha Ltd in favor of Class (Germany) remaining 40% license for Punjab remaining additional Escotel Mobile
Europe Sp. Zoo Motors  Divested 50% stake in Escorts Mahle stake in Escorts region to Hutchison 60% stake in stake in Ltd (51% stake)
(FTES) Ltd in favor of Goetze India Ltd (Latter JCB to JCB India Whampoa Cellular Escorts JCB to Farmtrac and Escorts
is joint venture of Escorts with Federal Ltd service license for JCB India Ltd Tractors Telecom Ltd
Mogul in USA in which both partners Punjab region to Europe (WoS) to Idea
have 27.21% and 25.47% stake Hutchison Whampoa Sp.zo.o (FTES) Cellular
respectively.
0.6 33% 0.7 30% 0.8 34% 0.8 34% 0.8 34% 1.5 42% 1.5 42% 1.5 0.4
Jun-00 Jun-01 Jul-02 Nov-02 Feb-03 Apr-03 Jun-03 Jan-04
Dec-18 Aug-18 Aug-16 Feb-13 Oct-09 Sep-06 Mar-06 Sep-05
-0.1 15% -0.1 15% -0.0 20% 0.1 16% 0.1 18% 0.4 30% 0.8 41% 0.8 41%
 Entered into a  Sold auto  Acquired 36%  Sold mobile  Divested its 49%  Entered into JV to  Sold 90% stake in
 Entered into a
49% JV with component additional stake in value added shareholding in manufacture tractors Escorts Heart Institute
40% JV with
Tadano, Japan to division - Farmtrac Tractors services (m-vas) Carraro India Limited, in Bangladesh and Research Centre
Kubota, Japan to
manufacture manufacturing Europe Sp.zo.o company to a joint venture through a joint to Fortis Healthcare
manufacture and
higher shock absorbers - (FTES) making it a Cellnext between Escorts venture with the (~10% was held by
export tractors
capacity/tonnage to Badve WoS Solutions Limited and Carraro Nitol-Niloy group Mr. Naresh Trehan
cranes Engineering Pvt. Limited. S.p.A through ESOPs)
Ltd
Net Debt to Equity Investments as % of Capital Employed Page 5

Currently, non-current investments comprise only of interests in the agricultural machinery and construction equipment segments
Investment as %
Non Current Investments % Stake as at
of capital
(Standalone; Rs. M.n.) March 2019
employed (FY19)
In Subsidiaries
SHP as at Dec 19 Principal Activities
Employee  Not operational. The Company is presently engaged in recovery

Trust Escorts Finance Limited 69.4% 0.0% of delinquent loan assets and settlement of old legal cases filed
by/ against the Company.
2.5%
Public Escorts Securities Limited 51.3% 0.2%  Provides security trading services
30.3%
 Production, development and import of parts and accessories,
Farmtrac Tractors Europe SP Z.o.o, Poland 100.0% 0.7% sale of agricultural tractors and organization of services in respect
of agricultural tractors
 Aim to bring next generation technology enabled farming
Promoters application, precision farming, and digital technology solutions to
Escorts Crop Solution Limited (formerly
40.3% 100.0% 0.6% Indian farmers. Endeavors to become India's most reliable farm
known as EDDAL Credit Limited)
mechanization solution provider with Advanced Machines,
Trained Operators, and Advisory Services on pay-per-use model.
Sole beneficiary interest in Escorts Benefit

100.0% 11.4%  Treasury shares
and Welfare Trust
Associate
Escorts Consumer Credit Limited 29.4% 0.0%  Financing Activity

Institutional Investors
26.9%
JV
Adico Escorts Agri Equipment Private  Manufacturing and trading of agricultural equipments and its
40.0% 0.3%
Limited spares and implements
Includes ~27.5% stake held  Manufacturing and selling of higher capacity/higher tonnage
Tadano Escorts India Private Limited 49.0% 1.0%
by Escorts Benefit and cranes
Welfare Trust
Escorts Kubota India Private Limited 40.0% 2.1%  Manufacturing and selling of tractors for export markets
Page 6
Snapshot of ESC’s major business segments

Segment Agricultural Machinery Construction Equipment Railway Equipment
% of revenue
~77% ~17% ~06%
(FY19)
 One of India’s foremost tractor manufacturers, offering  Present in the material handling cranes, compactors  Manufacture safety and comfort applications for
more than 225 variants (12 to 75 HP) in the domestic and backhoe loaders segments. the railways including brake systems, couplers,
About
market under three marquee brands: Farmtrac,  One of the world’s largest manufacturers of Pick and suspension systems, shock absorbers and rail
Powertrac and Steeltrac Carry (PnC) hydraulic mobile cranes fastening systems, among others.
 ~40% market share in cranes, ~10% market share in

 N/A. However, amongst the largest players in the
Market Shares  11.2% pan-India market share for the period Apr-Jan 20. compactors and ~1.5% market share in backhoe
segment
loaders (3QFY20)
 Healthy reservoir levels – bodes well for upcoming kharif

season  Road construction – a key demand driver - after  Increase in ordering of rolling stock of passenger
 Robust growth in Rabi sowing/increase in MSPs growing at a CAGR of 23% through FY14-FY18, slowed coaches/freight wagons
Industry Growth  Farm loan waivers and direct cash transfer schemes by down to 10%/1% in FY19/FY20E, respectively.  Conversion of passenger coaches from Schlieren
Drivers over the near states which are major tractor markets  With the growth in road construction contracts to LHB, new metro rail projects, new high speed
to medium term  Increased budgetary allocation under PMGSY/PMAY (G) awarded in FY20E expected to be tepid at ~10%, indigenous train launches
 Significantly lower mechanization levels compared to the organic growth in the construction equipment industry  Continued emphasis by the railways on safety
rest of the world in addition to material inter state might be muted over the near term. and modernization
differences in mechanization levels
 Aggressive product launches in recent years to fill up
white spaces
 Tadano JV would help fill key white spaces in the high
 Channel separation between Powertrac and Farmtrac  ESC derives ~40-45% of its revenue from new
margin cranes segment
would continue to boost focused marketing efforts products. The import content of these products
Growth Drivers  Distributorship agreement with Doosan Infracore
 Kubota JV would strengthen presence in key export is relatively high at ~40%
specific to ESC would continue to enable ESC cater to a larger
markets  Localisation of these would further aid margins
proportion of the overall construction equipment
 TAFE’s weak showing in recent years due to lack of for this segment – which are currently at 19-20%
industry
product launches has been exploited by all tractor OEMs
in recent years
 ESC is a relatively smaller player in the overall  Knorr Bremse
construction equipment industry. It has a market share  Medha Railway Equipment Pvt Ltd
 Asides of major OEMs like M&M/Sonalika, ESC would
of 40% in cranes, however, cranes as % of the overall  Hindustan Composites Ltd.
have to contend with increasing competition from Kubota
Competition industry by value is only 10%.  Industrial Laminates (India) Pvt. Ltd
and John Deere, both of which are looking to aggressively
 JCB/Tata Hitachi are much larger players in the  Rane Brake Linings Ltd
grow market share in India
segment and continue to enjoy benefits of scale as  Sundaram Brake Linings Ltd
reflected in their margins vis a vis ESC
Source: Company, Industry, Spark Capital Research
Page 7
ESC – Snapshot of operations

…led by ~10%/7% CAGR in tractor and construction equipment volumes; railways
ESC’s standalone revenue through FY15-FY20E has grown at a CAGR of ~10%...
revenue increased sharply led by new product introductions
22.0% 24.0%
18.3% 8%
-2.2%
-13.2% 11%
8,760 22%
5,158 4,986 -39.3%
32,108 46,800 1,837 68
-36.6%
39,858 34,594 40,932 49,951 61,964 60,614 Farm Equipment Construction Equipment Railways -11 Others
FY15 FY16 FY17 FY18 FY19 FY20E
Standalone Revenue (Rs. M.n.) YoY (%) FY15 FY20E CAGR FY15-FY20E
Source: Company, Industry, Spark Capital Research Source: Company, Industry, Spark Capital Research
..led by sustained cost containment efforts particularly on RMC and employee

On the other hand, EBITDA registered a sharp ~36% CAGR over this period…. costs
71.5%
11.8% 11.3% 13.6%

11.2% 13.1%
7.9%
10.8%
8.2%
4.9%
4.0% 67.4%
1,614 1,683 3,237 5,572 7,333 6,855
FY15 FY16 FY17 FY18 FY19 FY20E FY15 FY16 FY17 FY18 FY19 FY20E
EBITDA (Rs.mn) EBITDA (%) Employee costs (%) Other expenses (%) RMC (%)
Page 8
ESC – Snapshot of operations : Cost reduction and containment efforts
In FY15, ESC launched project ‘Shikhar’ in a bid to contain material costs in line with industry peers
73.1%
71.7% 71.5%
 ESC launched project Shikhar in Jun 14 to reduce employee costs
69.6% (particularly in the tractor business and to rationalize the
68.4% supplier base)
68.2%
67.6%
67.4%  The project was concluded in FY17 and through FY14-FY20E, ESC
RMC (overall, across divisions) has reduced by ~550bps
FY12 FY12-FY14 FY15 FY16 FY17 FY18 FY19 9mFY20E
Source: Company
With high cost legacy employees, manpower costs were a material pain-point for ESC. Through organization wide rightsizing efforts, these costs are now on a downward trend
Manpower expenses FY14 FY15 FY16 FY17 FY18 FY19

11.9% Creation of Centres
10.8% of excellence Total Manpower (nos) 10,400 9,200 9,300 8,750 10,165 11,000
10.6%
10.1%
8.6% 8.7% Permanent employees (nos) 4,157 4,059 3,786 3,749 3,823
7.6% Natural Attrition Non-permanent employees (nos) 10,400 5,043 5,241 4,964 6,416 7,177
Employee Costs (Rs. M.n.) 6,674 4,318 3,993 4,390 4,311 4,717
Outsourcing
(Non-core jobs) Remuneration of KMPs (Rs. M.n.) 143 140 233 271 222
Employee Costs - ex KMP

4,175 3,853 4,157 4,040 4,495
Shared remuneration (Rs. M.n.)
FY14 FY15 FY16 FY17 FY18 FY19 9mFY20E Services Cost per employee (000 Rs. P.a.) 454 414 475 397 409
Source: Company
Page 9
ESC – Snapshot of operations : Cost reduction and containment efforts
Revenue (Rs. M.n.) FY14 FY15 FY16 FY17 FY18 FY19 9mFY20
International Tractors 37,726 40,195 35,158 40,505 45,791 53,145 n/a
TAFE 27,788 25,652 22,374 23,713 27,441 n/a n/a
ESC (Tractor Segment revenue) 52,690 32,108 27,527 33,460 39,579 47,440 33,792
M&M (Tractor Segment revenue) 1,43,337 1,33,063 1,22,457 1,39,510 1,58,041 1,68,747 1,22,915
EBIT (%)* International Tractors

TAFE
20.0% 19.8% 20.0% 19.9% 19.3% 19.3%
18.8% 18.4% 17.7% ESCORTS
17.1% 16.3%
14.8% 14.1% 14.0% M&M
13.6%
12.1%
10.4% 10.3%
8.5% 8.0% 8.1% 8.0% 8.5% While ESC has gained significant
6.7% 7.1%
ground w.r.t. improvement in
EBIT margins in recent years, its
- - - EBIT margins continue to
considerably lag M&M and
FY14 FY15 FY16 FY17 FY18 FY19 9mFY20
International Tractors
*EBIT % for ESC and M&M represents the farm equipment segment profitability
Employee Costs as % Other Costs as % of

FY14 FY15 FY16 FY17 FY18 FY19 9mFY20 FY14 FY15 FY16 FY17 FY18 FY19 9mFY20
of Revenue Revenue
International Tractors 3.8% 4.2% 5.3% 5.4% 6.0% 6.4% n/a International Tractors 9.8% 9.8% 9.6% 10.2% 11.0% 12.5% n/a
TAFE 5.2% 6.4% 7.3% 7.5% 7.4% n/a n/a TAFE 12.3% 11.5% 13.5% 14.7% 15.1% n/a n/a
ESC (Overall) 10.6% 10.8% 11.9% 10.1% 8.6% 7.6% 8.7% ESC (Overall) 11.6% 13.6% 13.6% 13.8% 12.8% 12.1% 12.7%
M&M (Overall) 6.0% 6.7% 6.6% 7.0% 6.7% 6.2% 7.0% M&M (Overall) 11.2% 11.8% 11.8% 11.8% 12.0% 11.4% 11.6%
Page 10
ESC – Snapshot of operations

Focused divestment of non-core operations has freed up capital invested in non- ESC has a variable cost heavy operating structure which insulates its margins from
current investments material volatility
Non Current Investments as % of Capital Employed - Standalone Breakdown of OPEX into Fixed and Standalone
42% Variable costs FY16 FY17 FY18 FY19
Total Variable OPEX as % of
revenue
Raw Material Costs 69.6% 68.2% 67.4% 68.4%
15%
Employee Costs (assuming 30% is
3.6% 3.0% 2.6% 2.3%
variable)
Other expenses
FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY14 FY15 FY16 FY17 FY18 FY19 (includes 50% of semi-variable 4.9% 4.8% 6.9% 6.4%
expenses)
Standalone Working Capital Days – impacted by the steep reduction in payable Sub-Total - Variable OPEX as % of
days in FY19 78.1% 76.1% 76.9% 77.1%
revenue
Days FY14 FY15 FY16 FY17 FY18 FY19
Total Fixed OPEX as % of revenue
Inventories 32 38 42 38 40 48
Trade Receivables 20 36 41 41 44 55 Employee Costs (assuming 70% is
8.3% 7.1% 6.0% 5.3%
Trade Payables 48 64 78 80 90 71 fixed)
Core NWC 4 10 5 -1 -6 32
Loans and Advances 14 23 14 10 18 24 Other expenses
Other Current Assets 0 1 3 3 2 2 (includes 50% of semi-variable 8.3% 8.3% 5.9% 5.7%
Other current liabilities 11 19 18 19 19 17 expenses)
Provisions 12 18 17 14 12 9
Depreciation 1.7% 1.5% 1.5% 1.4%
Total NWC -4 -3 -13 -20 -17 33
Sub-Total – Fixed OPEX as % of
18.3% 16.9% 13.3% 12.4%
revenue
Net Debt (Rs. M.n.) 1,709 2,412 1,063 -1,344 -7,467 -3,443
Net Debt to Equity (x) 0.1 0.1 0.1 -0.1 -0.3 -0.1
TOTAL OPEX 96.4% 93.0% 90.2% 89.5%
Net Debt to EBITDA (x) 0.4 1.5 0.6 -0.4 -1.3 -0.5 EBIT (%) 3.6% 7.0% 9.8% 10.5%
Page 11
Peer Comparison
P/E EV/EBIDTA Revenue EBITDA PAT RoCE (%)

Mcap CAGR CAGR CAGR
Company
(Rs. Bn) (FY20- (FY20- (FY20-
FY19 FY20E FY21E FY22E FY19 FY20E FY21E FY22E FY22E) FY22E) FY22E) FY19 FY21E
ESC 56 11.6 11.6 10.0 8.7 7.2 7.4 6.3 5.2 10.2% 13.1% 15.8% 22.1% 22.4%
M&M 437 8.6 12.1 12.5 10.4 5.2 6.2 6.4 6.0 5.5% 5.3% 8.1% 10.5% 10.0%
HMCL 356 10.5 10.6 11.2 9.9 6.6 7.3 7.2 6.3 11.2% 6.1% 3.7% 23.1% 21.8%
MSIL 1,658 22.1 25.7 23.2 18.2 12.2 15.6 13.4 10.4 8.5% 20.8% 18.8% 13.6% 16.9%
VSTT 7 16.1 25.9 12.4 8.4 13.1 16.2 8.0 7.0 16.8% 72.7% 75.2% 5.1% 12.7%
Source: Company, Industry, Spark Capital Research
Page 12
AGRICULTURAL MACHINERY DIVISION : ~77% OF REVENUE (FY19)
Page 13
Our prognosis for tractor volume growth in FY21E: Positives significantly outweigh the negatives
While overall spending by the Ministry of

MSP hikes – Kharif and Rabi MSP prices
Rural Development and Ministry of
grew by 3%/6%, respectively in FY20.
Agriculture is expected to increase by
Agri prices are on an upward trend in
~13% YoY in FY21E, the decline in
India and globally after facing
budgeted outlay under the MNREGA by
deflation/flat prices in the last 3 years
~13%, is a downer
Budgeted spending under the

Rural MSP
PMGSY and PMAY (Rural) is Spends
expected to increase by
~39%/6% YoY respectively in Food Rabi sowings increased by 10%
FY21E, aiding demand for non- Rural Grain as of Feb 2020, which should
agri tractor usage Construction result in a good output of food
Output grain
Activities
Water reservoirs levels at ~62%
in Mar-20 (highest since Mar-14
atleast) compared to 34% YoY;
Reservoir Farm Farm income to increase by Rs.
we believe this would be a key Wealth
3.3tn (11.3%) in FY20E and by
enabler for strong agricultural Levels Income
Effect Rs. 3.4tn (10.5%) in FY22E vs.
output in FY21E
Rs. 1.3tn in FY19, led by growth
Farmer in production and rising agri
Under the PM-Kisan scheme, Govt. has
prices
budgeted Rs. 750bn in FY21E, with Support Subsidies
~145mn farmers expected to benefit from schemes
the scheme. Due to delays in subsidy allocation, the
While the PM Kisan largesse might, by tractors sold under subsidy are expected
itself, not have a material impact on to be negligible in FY20E (~10% of
incremental tractor volumes, state volumes in FY19). Industry commentary
specific farm loan waivers and direct indicates that subsidies across major
support schemes could have a positive Southern states could be disbursed
rub-off on tractor demand. shortly.
Page 14
Data since FY02 indicates that tractor cycles typically last for ~5 years; we believe that the current cycle would cease in FY20E, as volumes pick
up in FY21E led by a confluence of positive demand triggers
Tractor Volumes – YoY (%)
Length of cycle (yrs) 5 5 2 5

32%
29%
21% 20% 20% 22%
16% 18%
10% 11% 10%
1%
-2%
-6% -5%
-10% -9%
-13%
-25%
FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20E
Source: Spark Capital Research General General General General

Elections Elections Elections Elections
Historical data suggests that tractor volume growth bears limited co-relation with overall rainfall deviation…..
FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20E
Tractor Volumes
228 214 160 175 226 263 318 302 305 403 482 537 528 634 551 494 583 711 785 715
(000s) For the period
FY02-FY20, co-
relation
Tractor Volumes between
-6.1% -25.3% 9.6% 28.9% 16.2% 21.2% -5.1% 0.8% 32.2% 19.8% 11.3% -1.7% 20.2% -13.0% -10.5% 18.0% 22.1% 10.4% -9.0% rainfall and
YoY (%)
tractor volume
growth is a
mere 17%
Rainfall deviation
89.0% 89.0% 77.0% 104.0% 88.0% 99.0% 100.0% 106.0% 98.0% 78.0% 103.0% 101.0% 92.0% 106.0% 88.0% 86.0% 97.0% 95.0% 91.0% 108.8%
from LPA (%)
Source: Spark Capital Research
Page 15
Strong growth in rabi acreage and MSPs, coupled with record reservoir levels bodes well for robust kharif sowing for FY21E
…nevertheless, record water reservoir levels as at Mar20 indicate a strong possibility of agricultural demand led revival in tractor volumes in FY21E
22%
20% 62%
18%
10%
36% 37% 36% 34%

30%
26%
-10% -9%
-13%
FY14 FY15 FY16 FY17 FY18 FY19 FY20E
Average reservoir levels (Mar) Tractor Volumes YoY (%)
FY14 FY15 FY16 FY17 FY18 FY19 FY20E
Tractor Volumes (000s) 634 551 494 583 711 785 715
 The kharif production in FY20E was impacted by floods
and unevenly distributed rainfall.
Tractor Volumes YoY (%) 20% -13% -10% 18% 22% 10% -9%
 However, rabi sowing has picked up strongly – up ~10%
Kharif Crop Production growth (%) 0.5% -0.5% -2.3% 10.6% 1.5% 0.9% -0.8%
in Feb 2020. Aided by healthy reservoir levels, kharif
sowing in FY21E should commence on a positive keel
aiding tractor volumes
Kharif MSP Growth(%) 4.3% 1.6% 3.0% 5.3% 6.1% 22.0% 3.3%
 Additionally, aiding farm income would be the robust
growth in Rabi MSP for FY20E
Rabi Crop Production growth (%) 5.6% -9.1% 2.0% 8.2% 5.7% -0.9% 8.0%
Rabi MSP Growth (%) 4.1% 2.7% 8.7% 12.3% 8.7% 8.2% 5.8%
Page 16
Good rabi harvest and higher Agri prices should lead to double digit farm income growth after over 3-years of subdued farm income growth
Total sown area under rabi has jumped to the highest ever Farm income to increase by Rs. 3.3 in FY20E and by Rs. 3.4tn in FY21E vs. Rs.
(66mn ha) – up 9.5% yoy mainly led by record high water 1.3tn in FY19, led by double digit farm income growth
9.5%
availability (%, yoy)
3.31 3.42
6.2% 21.9%
5.6%
2.34
13.1%
0.1% 11.3% 10.5%
1.26
-0.5%
-2.9% 4.5%
-4.3%
-4.9%
-6.3% FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20E FY21E
2012 2013 2014 2015 2016 2017 2018 2019 2020
Incremental Agri GDP (Rs. tn) - RHS Nominal Agri GDP growth (%, yoy)
Agri prices have jumped in India and globally after facing deflation/flat
prices in the last 3 years (%, yoy) Prices of key agri-commodities have witnessed a sharp uptick in the last 12 months
25 20
20 16.9 263% 18,200
15 15 13,500
12.2 146% 12,000
10 12.2
8,100 7% 6% 3% -2%
5 10 36% 27% 5,450
12% 9% 3,725 3,195 2% 0% -5%
0 1,450 2,050 1,755 -33%
925 700 45 300
-5 5
-10 -6.7
Rs./15kg
Rs./MT
Rs./liter
Rs./40kgs
Rs./50kgs
Rs./25kgs
Rs/qtl
Rs/qtl
Rs/qtl
Rs/qtl
Rs/qtl
Rs/qtl
Rs/qtl
Rs/qtl
-15 0
-20
-1.7
-25 -5 Onion Potato Milk Palm Oil Dal Soya wheat Soya Sugar Rice Tomato Barley Cotton Copra
Jun-12 Apr-13 Feb-14 Dec-14 Oct-15 Aug-16 Jun-17 Apr-18 Feb-19 Dec-19 Masoor bean (Basmati) NNS
Global food Price India food inflation (%) - RHS Current 12M
Source: GoI, Spark Capital Research
Page 17
Budgeted government spending on rural schemes is expected to continue to be robust in FY21E

While the reduction in the budgeted MNREGA spends is a downer, we believe that the increase in PMGSY and PMAY-Rural spends would be a strong boost for non-agri tractor
demand. PM-Kisan scheme – expected to benefit ~145 mn farmers would also enable growth in demand
Outlay on Major Schemes (Rs. bn) Growth (%, yoy)
FY14 FY15 FY16 FY17 FY18 FY19 FY20RE FY21BE FY14 FY15 FY16 FY17 FY18 FY19 FY20RE FY21BE
Ministry of Rural Development (bn) 611 698 774 951 1,086 1,118 1,226 1,201 -7.7% 14.2% 10.8% 22.9% 14.2% 3.0% 9.7% -2.0%
Rural employment (MNREGA) 300 325 373 482 552 618 710 615 -6.5% 8.2% 15.1% 29.1% 14.4% 12.1% 14.9% -13.4%
Rural roads (PMGSY) 98 100 183 179 169 154 141 195 10.1% 1.6% 83.6% -2.0% -5.9% -8.6% -8.7% 38.6%
Rural housing (PMAY - Rural) 131 107 101 161 226 193 185 195 36.9% -18.5% -5.1% 58.9% 40.5% -14.5% -4.3% 5.5%
Others 82 167 116 129 140 153 191 196 -47.4% 103.3% -30.5% 10.7% 8.5% 9.6% 24.8% 2.9%
Ministry of Agriculture (bn) 349 361 371 445 464 568 1,132 1,469 9.7% 3.4% 2.7% 20.0% 4.2% 22.5% 99.4% 29.7%
PM Kisan 12 544 750 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 4281.1% 37.9%
Interest Subsidy for Short Term Credit to Farmers 0 134 130 115 179 212 0.0% 0.0% 0.0% 0.0% -2.6% -11.9% 55.4% 18.5%
Crop Insurance Scheme 26 26 30 111 94 119 136 157 0.0% 1.9% 14.8% 270.5% -14.8% 26.7% 14.3% 15.1%
Market Intervention Scheme and Price Support Scheme (MIS-PSS) 0 1 7 14 20 20 0.0% 0.0% 0.0% 200.6% 380.5% 100.0% 43.6% -0.5%
Pradhan Mantri Annadata Aay Sanrakshan Yojna (PM-AASHA) 47 3 5 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% -93.2% 55.8%
Pradhan Mantri Krishi Sinchai Yojana (PMKSY) 0 0 16 20 28 29 20 40 0.0% 0.0% 0.0% 28.0% 41.6% 3.5% -30.4% 96.9%
Green Revolution 98 101 111 118 100 133 0.0% 0.0% 0.0% 3.4% 9.4% 6.3% -15.2% 33.7%
Others 323 335 227 78 93 113 130 152 1.7% 3.6% -32.2% -65.6% 19.3% 21.5% 15.2% 16.5%
TOTAL 960 1,059 1,145 1,396 1,549 1,686 2,359 2,670 -2.0% 10.3% 8.1% 21.9% 11.0% 8.9% 39.9% 13.2%
Tractor Volumes (000s) 634 551 494 583 711 785 715 750 20.2% -13.0% -10.5% 18.0% 22.1% 10.4% -9.0% 5.0%
Source: Company Source: Company
Page 18
Budgeted government spending on rural schemes is expected to continue to be robust in FY21E

Non-agri usage of tractors is estimated at ~35%; PMGSY spends have slackened through FY17-FY20, while PMAY spends slipped in FY19-FY20.
The budgeted increase in spends on both these schemes is expected to aid non-agri tractor usage in FY21E
83.6% 58.9%
36.9%
40.5%
38.6%
20.2% 20.2% -4.3% 5.5%

18.0% -5.1% 18.0% 22.1% 10.4%
22.1%
1.6% 10.4% -13.0%
-2.0% 5.0%
10.1% -8.7% 5.0%
-8.6% -9.0% -10.5% -9.0%
-10.5% -5.9% -18.5% -14.5%
-13.0%
FY14 FY15 FY16 FY17 FY18 FY19 FY20RE FY21BE FY14 FY15 FY16 FY17 FY18 FY19 FY20RE FY21BE
Spending on Rural Roads (PMGSY) YoY (%) Tractor Volume growth (%) Spending on Rural Housing (PMAY) YoY (%) Tractor Volume growth (%)
Source: Company
Source: Company
Page 19
UP with ~24 mn farmers to benefit the most under the PM-Kisan scheme; ~55-60% of the intended beneficiaries have received the promised
sums till date. However, given the limited income support under the scheme, it would not materially impact incremental tractor volumes.
 The central government, in its interim budget for fiscal 2020, announced the PM- Operational
% of total
% of Tractor
Kisan scheme, a fixed-income support of Rs 6,000 to all small and marginal farmer States Holders volumes (YTD
Holders
(m.n.) nos 20)
families in three equal installments. ~145 mn farmer families are expected to
benefit from the scheme Uttar Pradesh 23.8 16% 17%
 UP is expected be the biggest beneficiary, as the state has the highest number of Bihar 16.4 11% 6%
small and marginal farmers at ~24 mn.
Maharashtra 15.3 10% 8%
 The scheme initially provided income support to all small and marginal farmers’
families across the country, holding cultivable land up to 2 hectares. However, its Madhya Pradesh 10.0 7% 13%
ambit was later expanded to cover all farmer families in the country irrespective Karnataka 8.7 6% 6%
of the size of their land holdings.
Andhra Pradesh 8.5 6% 3%
 In FY20E, the government is estimated to spend ~Rs. 540 bn for the above; in
Tamil Nadu 7.9 5% 3% 80% of the
FY21E, ~Rs. 750bn has been budgeted to be spent under the scheme. farmer
 However, we believe that given the limited income support under the scheme, it Rajasthan 7.7 5% 10% beneficiaries
would not materially impact incremental tractor volumes. are in states
Kerala 7.6 5% 0% which
comprise
Though the intended beneficiaries are expected to be ~145mn farmers, the actual West Bengal 7.2 5% 3%
~75% of
disbursement has taken place only to a much smaller number of farmers as of now tractor
Telangana 5.9 4% 5%
60% of 54% of industry by
total total Gujarat 5.3 4% 8% volume
145
eligible eligible Others 4.9 3% 1%
farmers farmers
Orissa 4.9 3% 2%
86
78 Chattisgarh 4.0 3% 4%
Jharkhand 2.8 2% 1%
Assam 2.7 2% 1%
Haryana 1.6 1% 5%
Punjab 1.1 1% 3%
Estimated no. of beneficiaries No. of beneficiaries who have No. of beneficiaries who have
(m.n.) received first instalment(m.n.) received second instalment(m.n.)
Total 146.5 100% 100%
Page 20
Farm loan waivers have generally had a positive impact on tractor volumes in periods following the announcement
Farm Loan Waivers
Contribut
No. of Total no. of YTD20
Waiver % of ion to FY18 YoY FY19 YoY
eligible farmers in YoY
State Amount Loan waiver upto (Rs.) eligible Status - Dec 19 tractor Volume Volume
farmers the state Volume
(Rs. Bn.) farmers volumes growth growth
(m.n.) (m.n.) growth
(YTD20)
Apr-17 UP 360 1,00,000 8.6 23.0 37% ~100% disbursed 17% 34% 17% -7%
~53% disbursed;
Jun-17 Punjab 100 2,00,000 0.6 1.5 41% Scheme wound up in Jul 3% 23% 0% 6%
2019
Jun-17 Maharashtra 340 1,50,000 8.9 15.3 58% ~71% disbursed 8% 40% -14% -2%
Jun-18 Karnataka 440 2,00,000 4.5 8.7 52% ~29% disbursed 6% 7% 14% -5%
Dec-18 Rajasthan 180 2,00,000 3.0 7.7 39% ~40% disbursed 3% 7% 1% 9%
Dec-18 Madhya Pradesh 500 2,00,000 5.5 10.0 55% ~20% disbursed 13% 16% 18% 6%
Complete waiver of loans

Dec-18 Chattisgarh 610 taken from Grameen Banks n/a 4.0 n/a ~<20% disbursed 4% 8% 15% 22%
and Co-op banks
Dec-19 Telangana 320 1,00,000 4.6 5.9 77% No Updates 5%
Nov-19 Maharashtra 480 2,00,000 9.0 15.3 59% Yet to commence 8% 40% -14% -2%
Page 21
On the other hand, direct transfer schemes announced by certain states might not have a material impact on industry volumes as these states
do not account for a major portion of overall industry volumes
Direct Transfer Schemes
Contribution
Allocated Total no. of FY18 YoY FY19 YoY YTD20 YoY
No. of eligible % of eligible to tractor
State Amount (Rs. Benefit (Rs.) farmers in the Volume Volume Volume
farmers (m.n.) farmers volumes
Bn) state (m.n.) growth growth growth
(YTD20)
Rs. 5000 /acre for two

May-18 Telangana 114 5.8 5.9 98% 5%
cropping seasons
Dec-18 Jharkhand 23 Rs. 5000 /acre 2.3 2.8 82% 1% 56% 50% -42%
Rs. 5000 p.a. for next 5

Feb-19 Odisha 102 4.7 4.9 97% 2% 37% 38% -25%
cropping seasons
Rs. 10000 p.a. (Rs. 4000 if

Feb-19 Andhra Pradesh 50 farmer benefits from PM- 7.0 8.5 82% 3%
Kisan
Page 22
Subsidies, which accounted for ~10% of industry volumes in FY18/FY19 practically dried up in FY20E; with Assam/Telangana/AP expected to
announce subsidies over the near term, expect demand to bounce back in FY21E
Subsidised tractors accounted for ~10% of industry
The states below account for bulk of the tractors sold under subsidy
volumes in FY18/FY19
% of volumes YTD20 Subsidy scheme for FY19

Current
7,85,000 status
FY18 FY19 YTD20 Subsidy per tractor No. of units
7,11,478
Telangana/ Telangana: Rs. 300,000 Tel: 12000 tractors

10.7% 10.3% 7.5% Not in force
Andhra Pradesh AP: Rs. 150,000-200,000 AP: 12000 tractors
7,05,000
Commenced
6,43,478 Gujarat 7.0% 7.1% 7.9% Rs. 45,000-60,000 32,000 tractors
in 1QFY20
Maharashtra 10.6% 8.1% 8.4% Rs. 100,000-125,000 17,000 tractors Not in force
68,000 80,000
Commenced
FY18 FY19 Assam 1.2% 2.1% 1.2% Upto Rs. 550,000 10,000 tractors
in 4QFY20
Non subsidised tractor sales Total

Total 29.5% 27.5% 25.0%
Page 23
Inter-country and inter-state comparison of farm mechanization levels indicates strong potential for incremental tractor penetration
Haryana exhibits the highest mechanisation levels at ~2.8 hp/ha; the chart below indicates no. of years required by state to reach Haryana’s mechanisation levels. On a pan-
India basis,
No.it would
of yearsrequire
(based~10
on years
FY19) for the same
volumes
2.8
107 2.0 2.1

1.8 1.8
1.5
51 1.3 1.3 1.3
1.1 1.1 1.2
32 0.9 0.9 1.0 1.0 1.0
0.8 0.8
0.5 14 15
0.3 8 9 9 10 9 7 8 8 6
0.1 4 3 2 3 0
17 11 10
Ker Tel HP Assam Mah Kar Jkhand Raj Orissa TN WB India Cgarh J&K Ukhand Guj MP UP Bihar AP Punj Hary
Current Hp/Ha No. of years (based on FY19) volumes
India’s mechanisation levels materially lag that of developed nations
GDP per capita less

GDP per capita more than 30,000 US$ GDP per capita between 10,000 to 30,000 US$ than 10,000 US $
47%
9.80 40%
37%
7.60 8.20
7.00
24%
4.50 4.10 4.10
3.70
2.00 7% 1.90 1.60 1.50
2% 3% 4% 4%
1%
13%
2%
UK Germany USA France Italy Japan South Korea Poland Turkey China Thailand India
HP/ha % of Population of Employed in Agri
Source: Company
Page 24
ESC has engineered a multi-pronged strategy to gain share in its traditionally weak South and West markets, while consolidating its presence in
its strong North and Central Belt
 ESC market share gains (and for the rest of the industry) have also been aided by
steep market share losses witnessed by TAFE. The latter has lost 800 bps of market
share from FY13-YTD20; led by limited investments in products and a conscious shift
into the higher HP categories
 Incrementally, we believe that ESC would face increasing competition from John
Deere and Kubota, both of which are making impressive strides in product portfolio
expansion
 In FY17, ESC separated distribution channels for the Farmtrac (higher

end) and the Powertrac (lower end) brands enabling focused
marketing efforts
 ESC has traditionally been strong in the North and Central markets;
Competitive with robust dealer additions and focused marketing efforts in the
Scenario West and South markets, ESC has started seeing market share traction
in these states
Strengthening
Distribution  Through this decade, ESC has stepped up R&D spends on
new product development.
Network
 This has enabled ESC fill white spaces in its portfolio
Plugging across HP categories, aiding market share gains
Product
Portfolio Gaps
Source: Company
Page 25
ESC’s tractor product portfolio

Like other tractor OEMs, ESC has demarcated its portfolio into premium (Farmtrac + Compact) and the Economic segments (Powertrac + Steeltrac)…..investments made in
product development over the last few years have aided filling product white spaces across these segments
Market Size Premium Economic
52% High
(> 50 HP) FARMTRAC
&
(41-50 HP)
POWERTRAC
37%
Medium
(> 31-40 HP) ATOM
11% (COMPACT TRACTOR)
STEELTRAC
Low
(< 30 HP)
As shown below, per management,
ESC has plugged a significant chunk of white spaces in the Farmtrac and Powertrac segments
0% 25% 50% 75% 100%
Farmtrac 52% 95%
Powertrac 74% 90%
Steeltrac 25% 75%
Source: Company
Page 26
…..investments made in product development over the last few years have aided filling product white spaces across ESC’s product segments
New launches (facilitated by increasing R&D spends) have positively impacted ESC’s market share
Escorts Domestic Market Share Recurring R&D as % of revenue
11.60% 11.90%
10.70% 10.80% 11.00% 11.20%
10.40% 10.30%
1.70% 2.10% 2.10% 2.00% 1.80%

1.00% 1.20%
< 30  Atom Series 22-28 HP
 Farmtrac XP37
 Powertrac Euro 37
31-40  Farmtrac XP41
 Powertrac ALT 3500
 Powertrac Euro 45 In FY21E, ESC

 Powertrac Euro 50 plans to launch
41-50  Powertrac ALT 4000
 Farmtrac Classic 45
 6055 T20 Classic
face-lifts in the
 Farmtrac Classic 60 Farmtrac series
 Farmtrac 6050
 Farmtrac 6050 4x4
 Farmtrac 6055  6065 Executive Series
50+  Farmtrac Heritage
 Farmtrac 6055 Classic
series
(6050,6060,6075)
FY13 FY14 FY15 FY16 FY17 FY18 FY19 Apr-Jan 20

Source: Company
Page 27
M&M has the most expansive portfolio in the <30HP segment; the Atom Series launched by ESC in FY18 has enabled ~250 bps of market share
gains through YTD20
0-30 HP Recent Launches in this Segment

No. of models by HP category
FY18
Total
15 18 20 22 24 25 26 28 30
Atom Series 22-28 HP
Escorts 1 1 2
M&M 1 2 1 1 1 1 7
Sonalika 1 1 1 3 6
TAFE 2 1 3 6
Market Shares % of Industry volumes contributed by the segment
13.9% 13.5% 15.7% 15.2% 14.6% 11% 11% 11%

20.4% 22.8% 20.7%
5.2% 6.2%
3.4% 0.8% 9.6% 9.5% 9.4%
1.0% 9.5% 10.1% 9.8%
1.9% 5.3% 7.2%
25.7% 2.1% 3.5%
22.3% 10% 10% 10%
39.9% 18.2% 15.2% 16.8% 19.2% 15.9%
9% 9%
53.8% 51.5% 50.0% 49.9% 49.3% 49.4% 50.6%
37.6%
FY13 FY14 FY15 FY16 FY17 FY18 FY19 Apr-Jan 20 FY13 FY14 FY15 FY16 FY17 FY18 FY19 Apr-Jan 20
M&M TAFE Escorts International Tractors John Deere Others
Source: Company, Industry, Spark Capital Research Page 28

31-40 HP Segment: ESC recent launches have aided market share gains in this segment; however, ESC and other players have benefitted from
market share losses by TAFE

FY15
Total
31 32 34 35 36 37 38 39 40 Farmtrac XP37
Escorts 1 1 4 2 8 Farmtrac XP41
Powertrac ALT 3500

M&M 3 1 1 1 2 8
FY16
Sonalika 1 2 1 4 1 9
Powertrac Euro 37
TAFE 1 3 3 1 1 3 12
Powertrac Euro 31

3.6% 3.6% 4.0% 3.7% 2.6% 2.3% 2.6% 2.1%
9.4% 12.1% 13.0% 12.6% 12.5% 11.4% 12.6% 11.2%
11.5% 44%
14.3% 14.3% 13.0% 12.6% 14.5%
16.6% 15.0%
35.3% 30.0% 29.8% 26.8% 22.1%

29.7% 28.2% 22.2%
37% 37%
36% 36%
35% 35%
34%
37.0% 36.6% 36.4% 38.2% 41.0% 37.3% 39.0% 41.4%
Source: Company

41-50 HP Segment: ESC has an expansive portfolio in the largest segment by volumes; while market share gains for ESC have been muted in this
category, the ‘rice specialist’ tractors launched in this segment are expected to aid share gains

FY15
Total
41 42 44 45 46 47 48 49 50 Powertrac ALT 4000
Escorts 2 1 1 3 7 1 8 23
FY16
Powertrac Euro 45
M&M 2 2 2 2 3 11
Powertrac Euro 50
Sonalika 5 1 5 11
Farmtrac Classic 45
TAFE 7 1 1 1 1 10 21
Farmtrac Classic 60
9.6% 7.7% 7.5% 6.5% 5.2% 5.3% 6.1% 6.5% 49% 49% 49%
47% 47%
7.6% 7.4% 9.4% 9.9% 10.1% 11.2% 11.7% 11.1% 46% 46%
10.9% 9.7% 10.6% 11.7% 10.4%
15.6% 10.9% 10.6%
23.1% 23.5% 21.8% 19.6% 15.3% 18.7% 17.3%

13.7%
38%
45.3% 43.0% 42.6% 43.6% 44.9% 48.1% 43.9% 44.9%
Source: Company

51 HP+ Segment: John Deere and Sonalika being more export focused have a wide range of products in this segment
>50 HP Recent Launches in this Segment

FY15
Total
52 55 57 58 60 65 75 90 Farmtrac 6050
Escorts 3 1 3 7 Farmtrac 6050 4x4
Farmtrac 6055
M&M 1 4 1 1 7
Farmtrac Heritage series
Sonalika 3 2 5 1 1 12
(6050,6060,6075)
FY16
TAFE 4 1 5
Farmtrac 6055 Classic
11.4% 15.0% 14.2% 12.0% 12.2% 12.4% 13.0% 12.0%
14.5%
17.5% 16.0% 25.4% 26.3% 25.8% 28.1% 27.7%
8% 8% 8% 8%
26.6%
31.3%
35.7% 25.5% 23.7% 24.2% 21.6% 22.2% 7% 7%
4.0%
0.9%
9.7% 6.0% 6.8% 7.8% 6.2% 6.8%
6.4% 2.7% 3.6% 2.8% 3.2% 3.5% 3.0% 6%
1.7%
42.5%
23.7% 26.0% 27.6% 28.3% 26.6% 27.6% 28.3%
FY13 FY14 FY15 FY16 FY17 FY18 FY19 Apr-Jan 20 5%
M&M TAFE Escorts International Tractors John Deere Others FY13 FY14 FY15 FY16 FY17 FY18 FY19 Apr-Jan 20
Source: Company

Overall market shares: TAFE has lost ~800 bps market share from FY13-YTD20; John Deere and Sonalika have been the biggest beneficiaries of
the same. ESC’s market share has remained flat over this period
Overall Market Share
8% 7% 8% 7% 6% 6% 6% 6%
6% 6% 5% 6% 8% 9% 9% 10%
10% 10% 12% 12% 12% 12% 13% 12%
11.6% 10.7%
10.4% 10.3% 10.8%
11.0% 12.2% 11.6%
Others
John Deere
25% 25% 24% 23% 20% 19%
19% 18% International Tractors
Escorts
TAFE
M&M
41% 41% 43% 43% 41% 43%

41% 40%
FY13 FY14 FY15 FY16 FY17 FY18 FY19 Apr-Jan 20

Market share gain potential: ESC’s market share in the ‘opportunity markets of South and West comprise ~33% of the tractor industry by
volume; separation of Farmtrac/Powertrac channel and focused marketing schemes and efforts starting to bear fruits
ESCORTS Market Share
Jammu &
Kashmir
17.4%
Himachal 16.8%
Pradesh 15.7% 16.5%
Punjab 15.7%
Uttaranchal 15.4% 15.4%
15.1% 16.7%
Haryana 14.8%
Arunachal Pradesh 15.6% 14.2% 15.4%
13.8%
Uttar Pradesh 14.6%
Rajasthan Assam 14.5%
Bihar
Meghalaya
Jharkhand Tripura 11.6% 11.5%

Gujarat Madhya Pradesh W Bengal 10.8% 10.9%
10.7%
10.1%
Orissa 9.6% 9.7%
Maharashtra
Telangana
Low TIV 6.8%

Andhra Powertrac 1%
Pradesh
17% 5.7%
Karnataka
Opportunity 5.2%
5.0%
Market 4.6%
33% 4.3% 4.2% 4.4%
Tamil Nadu
Kerala Contribution
to Overall
Farmtrac Tractor
POWERTRAC 19% Volumes
FARMTRAC
Opportunity Market Farmtrac/Po

FY13 FY14 FY15 FY16 FY17 FY18 FY19 YTD Jan 20
wertrac
Low TIV 30% Farmtrac Powertrac Farmtrac/Powertrac Opportunity Market

Market share gain potential: ESC’s market share in the ‘opportunity markets of South and West comprise ~33% of the tractor industry by
volume; separation of Farmtrac/Powertrac channel and focused marketing schemes and efforts starting to bear fruits
Escorts Market Shares
% of YTD20
State FY13 FY14 FY15 FY16 FY17 FY18 FY19 YTD Jan 20 tractor
volumes
Madhya Pradesh 13.8% 13.2% 12.6% 13.4% 14.4% 14.8% 16.7% 15.7% 12.6%
Powertrac/Farmtrac
Uttar Pradesh 17.4% 17.4% 16.4% 17.3% 18.6% 17.6% 17.9% 15.2% 17.6%
Assam 9.0% 8.7% 12.2% 9.9% 9.7% 13.9% 21.8% 13.3% 1.1%
Farmtrac
Haryana 19.1% 17.6% 16.6% 18.4% 18.5% 19.9% 21.3% 17.5% 5.3%
Punjab 13.6% 12.0% 13.5% 12.7% 13.0% 10.1% 7.3% 5.8% 3.0%
Rajasthan 15.3% 14.6% 13.9% 13.4% 14.8% 14.8% 15.5% 14.3% 10.2%
Bihar 16.3% 14.9% 13.9% 15.3% 15.2% 16.0% 16.2% 17.9% 6.5%
Chhattisgarh - West 6.3% 6.5% 7.1% 7.2% 7.9% 8.5% 8.8% 8.2% 3.8%
Powertrac
Jharkhand 8.1% 7.1% 7.2% 6.1% 8.5% 9.7% 8.9% 6.5% 1.3%
Orissa 2.0% 1.2% 1.5% 1.9% 2.8% 4.7% 6.5% 5.9% 2.3%
West Bengal 9.2% 8.4% 10.6% 10.1% 11.5% 9.5% 9.1% 8.3% 3.0%
Opportunity Market
Andhra Pradesh 4.6% 3.7% 4.6% 5.1% 5.0% 4.4% 3.9% 4.5% 7.5%
Gujarat 5.6% 5.0% 5.2% 6.2% 7.1% 8.6% 9.7% 10.0% 7.7%
Karnataka 5.2% 3.1% 3.6% 3.1% 2.9% 2.7% 3.7% 4.6% 5.4%
Maharashtra 6.0% 4.8% 3.3% 3.4% 3.5% 5.0% 5.9% 7.1% 7.9%
Tamil Nadu 3.5% 4.1% 4.1% 3.0% 3.8% 3.0% 5.9% 7.3% 3.3%
Himachal Pradesh 10.1% 12.4% 14.8% 12.0% 10.6% 7.6% 6.5% 8.4% 0.3%
Jammu and Kashmir 9.1% 6.7% 6.5% 5.8% 4.3% 5.5% 5.8% 4.4% 0.5%
Low TIV
Kerala 20.6% 12.0% 7.8% 7.8% 10.8% 5.7% 5.9% 4.7% 0.1%
Others-India 0.0% 0.0% 0.0% 0.0% 0.0% 31.0% 37.8% 0.0% 0.1%
Uttaranchal 16.9% 11.9% 10.9% 6.5% 12.0% 10.2% 7.7% 5.4% 0.3%
Overall Market share 11.7% 10.8% 10.5% 10.3% 10.8% 11.0% 12.2% 11.6% 100.0%

Market share gain potential: ESC has been beefing up the number of dealers in its ‘opportunity markets’, which now account for ~25% of its
overall dealerships and only ~19% of its volumes. These investments to start bearing fruit over the near to medium term
ESC: Dealers by market ESC: % Dealers by market Avg. Volumes per Dealer (units Apr-Jan 20)
84
78 ESC Pan India
Average: 70
207 24% 21%
239
61
54
No. of
%. of
Dealers –
Dealers
980
(Mar-20) 33
(Mar-20) 189 19%
333 12 34% 1%
Farmtrac Powertrac Low TIV Farmtrac/Powertrac Opportunity Market
Dual Distribution in Strong Market
0% 25% 50% 75% 100%
Strong Brand Coverage 90% 99%
Weak Brand Coverage 33% 80%
South/West Focus 55% 80%

Channel Coverage
Source: Company

Market share gain potential: ESC has been beefing up the number of dealers in its ‘opportunity markets’, which now account for ~25% of its
overall dealerships and only ~19% of its volumes. These investments to start bearing fruit over the near to medium term
State wise State wise ESC State wise ESC Volumes per
ESC Market Share
State Classification Industry Volumes Volumes Dealers dealer
YTD20 Feb-20
Uttar Pradesh Farmtrac/Powertrac 17.3% 23.2% 15.2% 20.3% 80
Madhya Pradesh Farmtrac/Powertrac 12.6% 17.2% 15.7% 13.7% 88
Rajasthan Farmtrac 10.0% 12.6% 14.3% 10.3% 86
Haryana Farmtrac 5.3% 8.1% 17.5% 6.6% 86
Punjab Farmtrac 3.0% 1.5% 5.8% 2.8% 38
Assam Farmtrac 1.2% 1.3% 13.3% 1.4% 63
Bihar Powertrac 6.3% 10.0% 17.9% 9.1% 78
Chhattisgarh - West Powertrac 3.8% 2.7% 8.2% 3.6% 54
West Bengal Powertrac 3.0% 2.2% 8.3% 2.2% 68
Orissa Powertrac 2.3% 1.2% 5.9% 2.4% 34
Jharkhand Powertrac 1.3% 0.7% 6.5% 1.9% 26
Gujarat Opportunity Market 7.9% 6.6% 10.0% 6.2% 75
Maharashtra Opportunity Market 8.4% 4.8% 7.1% 6.0% 57
Karnataka Opportunity Market 5.5% 2.2% 4.6% 3.1% 50
Tamil Nadu Opportunity Market 3.4% 2.1% 7.3% 2.7% 55
Telangana Opportunity Market 5.0% 1.5% 3.6% 4.3% 25
Andhra Pradesh Opportunity Market 2.5% 1.4% 4.5% 2.1% 47
Himachal Pradesh Low TIV 0.3% 0.2% 8.4% 0.7% 20
Jammu and Kashmir Low TIV 0.5% 0.2% 4.4% 0.0% -
Uttaranchal Low TIV 0.3% 0.2% 5.4% 0.4% 27
Kerala Low TIV 0.1% 0.0% 4.7% 0.1% 22
Grand 100.0% 100.0% 11.6% 100.0% 70

Market share gain potential: ESC’s average volumes per dealer in key opportunity markets in the South exhibit much lower levels compared to
other OEMs
Dealerships and
No of Dealers as at Feb 20 Average Volumes per dealer (Apr-Jan20)
States
Andhra Pradesh 21 34 53 47 52 56
Assam 14 10 17 63 171 62
Bihar 89 87 98 78 55 62
Chhattisgarh - West 35 29 46 54 93 72
Gujarat 61 57 82 75 72 124
Haryana 65 41 64 86 136 78
Himachal Pradesh 7 10 5 20 52 20
Jammu And Kashmir - 9 10 - 55 8
Jharkhand 19 22 34 26 46 22
Karnataka 30 51 66 50 76 73
Kerala 1 1 1 22 - -
Madhya Pradesh 134 97 172 88 87 85
Maharashtra 59 103 97 57 48 39
Orissa 24 30 50 34 69 40
Punjab 27 37 50 38 77 35
Rajasthan 101 69 88 86 46 271
Tamil Nadu 26 28 48 55 46 57
Telangana 42 25 55 25 69 55
Uttar Pradesh 199 186 266 80 87 72
Uttaranchal 4 6 8 27 49 1
West Bengal 22 19 31 68 150 39
Total 980 951 1,341 70 74 79

Exports: ESC is as yet an insignificant player in the export markets; through new product introductions and growing market penetration, expect
ESC’s export volumes to grow strongly over the medium to longer term
Export Industry Volumes (ESC- Standalone)
FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20YTD
Upto 30 hp - 25 - - 28 60 411 863
31-40 hp 15 109 89 60 219 271 470 406

Escorts
41-50 hp 484 421 1,154 262 397 640 1,354 988
Volumes (nos)
51 hp and above 191 368 971 435 387 988 1,090 740
Total 690 923 2,214 757 1,031 1,959 3,325 2,997
Upto 30 hp 0% 3% 0% 0% 3% 3% 12% 29%
31-40 hp 2% 12% 4% 8% 21% 14% 14% 14%

Escorts
41-50 hp 70% 46% 52% 35% 39% 33% 41% 33%
Mix
51 hp and above 28% 40% 44% 57% 38% 50% 33% 25%
Total 100% 100% 100% 100% 100% 100% 100% 100%
Upto 30 hp 0% 3% 0% 0% 1% 2% 7% 15%
31-40 hp 0% 2% 2% 1% 4% 5% 10% 10%

Escorts
41-50 hp 3% 3% 7% 1% 2% 3% 6% 6%
Market Share
51 hp and above 0% 1% 2% 1% 1% 2% 2% 2%
Total 1% 1% 3% 1% 1% 2% 4% 5%

Exports: The JV with Kubota – through joint development of products and access to Kubota’s distribution channels) is expected to aid ESC
realize a strong improvement in export volumes over the medium term
Put Logos Kubota and Escorts JV
 In Feb 19, ESC formed a 40% JV to manufacture and export tractors. The JV is expected to have an initial capacity of 50,000 p.a.
 These tractors will be sold by both respectively through their separate channel network in domestic market.
 Kubota to export Escorts tractors through Kubota global distribution network in specific markets as mutually agreed.
 Both companies to jointly develop new products to cater to India and Overseas market.
 In FY19/FY20E, ESC has invested ~Rs. 1.2 bn (cumulatively) in the JV.
Addressing concerns on potential overlap

between ESC and Kubota products in the
export markets
Our (ESC) tractors are mostly very fuel efficient

and very rugged, so they last for long. Kubota
tractors are very different, like other MNC
EUROPE
tractors outside India they have built. So these
US tractors are like more performance and feature
Markets oriented, better on aesthetics, ergonomics,
driving comfort, et cetera, right. So they are
SAARC
very, very -- they serve like very different
LATAM customers. So we don't have a major overlap or
AFRICA any conflict in the positioning of the two
products.
— Nikhil Nanda
Chairman & Managing Director, ESC
Focus Export Markets
Page 39
Exports: Major OEMs have endeavored to enhance their presence in overseas markets in recent times through tie-ups/acquisitions
February October December

2020 2019 2018
 M&M entered into a  Manufacturing joint venture  60:40 manufacturing joint  Mahindra increase its stake to 49 per cent
collaboration with Mitsubishi between Chinese company venture between Kubota and from existing 35 per cent for Rs.37.74
Agricultural Machinery for Shandong Luyu Heavy Industry Escorts respectively with Rs.300 crore in Sampo Rosenlew
developing a new tractor
Co. and Sonalika. crore of initial investment.  Sampo is a manufacturer of combine
platform called K2. It will have
four tractor variants. These will  Shandong Luyu is a player in  Plans to jointly manufacture harvesters and forest machinery with
be designed for both domestic small-size loader, small-medium- high end tractors for domestic market presence in Europe, CIS and
and international markets sized excavator and forklift in market as well as exports Algeria.
 The new K2 platform is China.  Production line will be installed  Mahindra and Sampo to jointly focus on
expected to be launched in mid-  The JV company will invest $10 at Escorts’ existing Haryana the combine & specialty harvester
2021 and models will be million to create a capacity of facility with 50,000 capacity and business in Asia, Africa and Eurasian
introduced for two years across
50,000 engine and tractor commission in 2020 Economic Union Countries and Latin
horsepower ranges.
assembly facility in phase-1 America
January September January April October

2017 2017 2018 2018 2018
 Mahindra acquired Hisarlal, a  Mahindra acquired Erkunt  Mahindra bought 26% stake in  TAFE acquired IMT, a Serbian  ITL acquired minority stake in
farm equipment company, by Traktor , a Turkish tractor maker M.I.T.R.A Agro Equipment, a agriculture equipment FAMAG and thus increased
buying 75.1% equity stake and its foundry business for Maharashtra based Ag-Tech manufacturer for an undisclosed presence in the Algerian market.
Rs.800 crore company known for amount.  Plans to introduce new Agri-
 Hisarlal is a market leader with
45% market share in soil  Mahindra to benefit by manufacturing Sprayers, Dusters  It acquired the right to use the machineries with higher
preparation in Turkey diversifying its product portfolio and Potato Harvesters brand and Intellectual Property localization content.
such as designs
 Mahindra to benefit by growing as well as geographies  With this agreement, Mahindra
the farm equipment business in has managed to enter into
Turkey and Europe and expand sprayers business in India.
its footprint in Europe.
Page 40
Expect the tractor segment to report a revenue CAGR of 8% through FY20E-FY22E, led by a 5% volume CAGR in domestic volumes
Expect ESC to report a volume CAGR of ~6% through FY20-FY22E, led by a 5%/6%
Expect tractor segment revenue to register ~8% CAGR through FY20E-FY21E…
CAGR in domestic and export volumes respectively.
26% 22%
24% 20%
20%
3,325 5,417 18%
3,958 4,670
1,959
1,031
8% 8%
6% 6%
-5% -1%
62,699 78,446 93,087 87,241 91,603 96,183 33,460 39,579 47,440 46,800 50,639 54,777
FY17 FY18 FY19 FY20E FY21E FY22E FY17 FY18 FY19 FY20E FY21E FY22E
Domestic Volumes (nos) Export Volumes (nos) YoY (%) Tractor Revenue (Rs. M.n.) YoY (%)
Expect EBIT margins to benefit from operating leverages and softer commodity
..aided by a nominal 2% p.a. growth in realisations through FY22E
prices over the medium term
15.0%
4% 6% 13.6% 14.0% 14.0%
12.9%
2% 2% 4%
10.3%
0% 2%
-2% 0%
-2%
-4%
-6%
-6%
525 492 492 513 526 539
-8%
Realisation (Rs. 000s) YoY (%) EBIT (%)

CONSTRUCTION EQUIPMENT DIVISION : ~17% OF REVENUE (FY19)
Page 42
Growth in construction equipment industry is dependent majorly on road construction and mining activities; with muted road construction
awarding in FY20E, road construction in FY21E could be muted, impairing growth in the construction equipment segment
61.5% After growing by ~35% in FY19, ESC’s construction

equipment volumes have declined ~25% in 37.7%
9mFY20E 36.1% 35.8%
36.1% 32.3%
32.3%
24.8% 27.7%
17.3%
9.7% 19.4%
1.9% 4.8% 17.3%
0.0%
36.1%
10.4%
1,03,267
-10.5% 92,401 1.9%3.3% 1.3%
-16.7%
78,034 32.3%
66,548
17.3%
47,991 48,913
-10.5%
-67.9%
1.9%
FY15 FY16 FY17 FY18 FY19 FY20E FY21E FY22E -10.5% FY15 FY16 FY17 FY18 FY19 FY20E
Total Construction Equipment volumes (YoY) Total Construction Equipment volumes (YoY)
Road contracts awarded (kms, YoY) Road constructed (kms, YoY)
FY14 FY15 FY16 FY17 FY18 FY19
Total Construction Equipment volumes (nos)

Overall Industry Volumes Overall Industry Volumes
Total Construction Equipment volumes (YoY)
Overall Industry Volumes
36.1% 32.3%
17.3%
5.7% 6.2% 9.4%
1.9% 5.3% 5.1%
-10.5%
FY15 FY16 FY17 FY18 FY19
Total Construction Equipment volumes (YoY) Mining GDP Growth (%)

Page 43
Earthmoving equipment contributes the lions share by value to the overall construction equipment industry; ESC derives a majority of its
revenue from cranes and enjoys a sizeable market share in that segment
% of construction % of ESC
Major equipment
Segment equipment industry Application Segment User revenue Market
types
by value (%, FY19) ESC FY19 share
 Mining
 Small/Individual - 70%
 Roads
 Medium Fleet owners -  Backhoe Loader 2%
Earthmoving  Real Estate/Land
80% 20%  Excavator 20% (backhoe
Equipment Development
 Institutional/corporate -  Wheeler Loader loaders)
 Power
10%
 Railways/Metros
 Small/Individual - 55% ESC’s product presence

 Erection work in projects
 Medium Fleet owners -
Material  Power
20%  Pick and Carry
Handling and 10%  Steel 60% 40%
 Institutional/corporate - Cranes
Cranes  Mining
10%
 Railways/Metros
 Government - 5%
Traded+S
 Highways pares
 Rental Hirers -7%  Compactors
 Rural Roads 10% 11.5%
Road Building  Contractors -76%  Pavers
6%  Airports 10% (compact
Equipment  Corporate Buyers -3%  Asphalt
 Land Reclamation ors)
 Government bodies -14%  Finishers Backhoe
 Motor Graders Loaders
12.0%
ESC
 Irrigation canals
Revenue
 Road Construction  Mixers Compacto
Concrete Mix
2%  Building Construction   Pumps n/a n/a rs
Equipment 7.0% YTD20E
 Airports  Batching plants
 Precast/In situ
Cranes
69.5%
 Stone Quarries
Material  Mining  Compressors
2%  n/a n/a
processing  Over ground blue metal  Crushers
crushing
Page 44
ESC’s JV with Tadano would enhance its play in the more profitable higher tonnage and RT/TC cranes segment; the distribution agreement with
Doosan has enabled ESC address a much larger share of the construction equipment industry
 In Aug 2018, ESC entered into a 49% JV with Tadano, the largest manufacturer of cranes in
Japan.
Joint Venture RT/ TC To build the  The JV manufactures rough terrain and truck mounted cranes in the fast growing 20-80
For High segment and expand tonnage category
End Cranes Product Basket  The rough terrain and truck mounted cranes cater to big construction companies servicing
Slew
oil refineries, metro rail projects, smart city construction, solar power projects and ports
10-80T among others.
 The current market size of this segment in India is ~Rs. 4bn and key competitors include TIL
Ltd and SANY Ltd
TRX/Safe Cranes
Continue Market  ESC has invested ~Rs. 300 mn as an initial; investment in the JV towards setting up a
10 – 23T Dominance manufacturing facility in Faridabad.
in Safe Crane
and move  The management has indicated an overall investment of Rs. 750 mn to Rs. 1bn (ESC’s share)
in the JV over a period of 8-10 years.
Hydra Cranes the market
upwards
8 – 16T
Crane Segment Product Split  In Feb 2018, ESC forayed into the Crawler Excavator segment by getting into an exclusive
Distribution Agreement with Doosan Infracore Co. Ltd, Korea. Doosan Infracore is part of
the Doosan Group from Korea, which is involved in various sectors like Energy, Casting &
53% Forging, Water Plants, Construction & Engineering, Engines, Industrial Vehicles, Compact
60% 60%
68% 68% 67% Equipment along with Construction Equipment. The exclusive agreement is for Sales and
Service of entire range of Doosan products for the Indian market, which includes Crawler
Excavators, Mini Excavators & Wheel Loaders.
40% 40% 47%  With this association with Doosan Infracore Co Ltd, ESC has been able to double its
32% 32% 33%
addressed market in Construction Equipment industry from existing 40% to more than 80%
by value.
F-15/TRX Series Hydra
Page 45
ESC’s JV with Tadano would enhance its play in the more profitable higher tonnage and RT/TC cranes segment
With the Tadano JV, ESC would be able to enhance its play in the cranes segment
Traded+Spares
11.5% Market Shares - P&C Cranes
Backhoe Loaders
10% 4% 3% 9%
12.0% 16%
37% 40% 34%
ESC 37%
37%
Revenue
Compactors Mix
7.0% 53% 59% 57% 57%
YTD20E 47%
Cranes FY14 FY15 FY16 FY17 FY18

69.5%
ACE Escorts Others
However, ESC’s market share in the compactors and backhoe loader segments continues to be muted
Market Shares - Compactors Market Shares - Backhoe Loaders
13% 8% 11% 13% 17%

8% 8% 8% 8% 8% 8%
11% 9% 8% 8% 8%
16% 10% 10%
8% 8% 10% 9%
8% 13% 11% 10%
12% 11% 11%
25% 25% 21% 71% 74% 77% 75% 78%
16% 21%
28% 28% 28% 28% 23%
FY14 FY15 FY16 FY17 FY18 FY14 FY15 FY16 FY17 FY18
CASE HAMM Volvo Dynapac JCB Escorts Others JCB CASE Caterpillar Mahindra Escorts Others
Source: Spark Capital Research Source: Industry, Spark Capital Research
Page 46
ESC’s EBIT margins in this segment continue to be depressed due to lower scale of operations compared to peers
Escorts -5.6% -4.8% -5.4% -2.3% 1.9% 3.6%
JCB 8.1% 7.1% 8.9% 12.5% 12.6% n/a
TATA Hitachi -0.7% 0.4% 2.5% 6.8% 10.9% 8.3%
Action Construction Equipments 4.7% 7.2% 8.4% 8.1% 10.6% 9.0%
Revenue (Rs. Mn)

1,00,000 92,136
90,000
80,000 71,202
70,000 60,338
60,000 50,420
48,703
50,000 43,370
38,232
40,000 30,499
30,000 24,656
18,770 18,439
20,000 10,865 13,425 10,541
6,149 6,923 5,977 5,158 6,373 4,856 7,510 6,068 7,803
10,000
0
ACE TATA Hitachi JCB ESC
Page 47
Expect the CE segment to register a 13% revenue CAGR through FY20E-FY22E; improving scale to aid EBIT margins
Led by a 7% volume CAGR through FY20E-FY22E, expect the CE segment revenue to register a 13% CAGR through FY20E-FY22E
35% 11,155
10,541 35%
29% 9,658
25% 30%
8,760 24%
7,803 16%
6,068 10% 10%
5%
-17%
3,315 4,486 5,544 4,220-24% 4,431 4,874
Construction Revenue (Rs. M.n.) YoY (%) Volumes (nos) YoY (%)
Expect realisations to register a 5% CAGR through FY20E-FY22E led by improving

Improving scale and realisations to aid EBIT margins through FY22E
mix of higher tonnage cranes
9% 5.0%
9%
3.6% 3.7% 3.7%
5% 5%
1.9%
1,830
1,740
-4%
-5% -2.3%
1,901 2,076 2,180 2,289
FY15 FY16 FY17 FY18 FY19 FY20E FY17 FY18 FY19 FY20E FY21E FY22E
Realisation (Rs. 000s) YoY (%) Construction Equipment EBIT (%)

RAILWAY EQUIPMENT DIVISION: ~06% OF REVENUE (FY19)
Page 49
Braking/Suspension systems and couplers contribute the majority revenue in this segment
 Air Brake System- Passenger and Freight: Conventional  ESC was the first to commence manufacture of compressed air brake systems in India for
 Air Brake System- Passenger (Axle Mounted) and Freight (Bogie Mounted) the railway sector. The Company maintains advanced precision manufacturing facilities for
 Electro Pneumatic Brake System EMU/MEMU/DEMU distributor valves and is Asia’s largest manufacturer, having supplied more than 1,00,000
 Pneumatic Brake System- EMUAC/AC units to the Indian Railways for numerous freight and passenger car applications, besides
exporting to neighboring countries of SE Asia, Iran, Iraq, Egypt and few African nations.
 Parking Brake System
 Feed Valve for Loco
 Air Brake Accessories
 Levelling Valve for Air Spring Suspension Brake System  From traditional shock absorbers for the older rolling stock to the newer variety of
dampers, Escorts develops every type of dampers through in-house R&D. The Company
manufactures heavy-duty hydraulic dampers and air suspension control equipment for the
 TV Type Shocker- Conventional Coaches Indian Railways. These suspension systems ensure constancy in floor height for coaches,
 NTA Type Shockers – EMU Coaches with Air Suspension by optimizing the values of stiffness and reducing the vibration, to provide passenger
 Ta Type Dampers Conventional Locos comfort
 Dampers for LHB Coaches, ABB Locos,
Suspension System
EMD Loco, Self Propelled Cars
 Escorts is a leading player in supplying AARH couplers for LHB coaches (that have saved
 AAR H Centre Buffer Coupler- LHB / Main line Coaches many precious lives during different rail accidents due to their anti-lift, anti-torsion
 Semi Permanent Coupler- Schaku Type- EMU/MEMU/DEMU design), besides the Schaku couplers for electric multiple units (EMU) and mainline
electric multiple units (MEMU), and loco couplers for different locomotives in Indian
 Automatic Coupler- Kolkata Metro
Coupler Railways. We have supported Indian Railways in massive cost rationalization and design
 AAR H Transition Coupler- Locos – EMD / ALCO indigenization of the AARH couplers which were previously supplied only by few MNCs in
India
 CBB for Freight application – L Type
 CBB for Coaching application – K Type
 CBB for EMU application – K Type  Escorts supplies different types of composite brake blocks and pads for Indian Railways
 CBB for Loco application – L Type and caters to export markets. It is the only Indian company manufacturing its own brake
Composite Material pad. While the raw materials are sourced from trusted manufacturers and mines to
 Brake Pads for LHB / Metro Coaches
safeguard quality, the mixers are controlled by Programmable Logic Controller (PLC) to
eliminate human error.
 Fire Retardant Vestibules for Passenger Coaches
Conventional / LHB Vestibules
New Products
ESC is present across rolling stock categories; however, expect muted growth in rolling stock additions in FY21E per the Railway Budget
 Air Brake/ Accessories for conventional Coaches  Door System

Metros
 Piping  Brake System and Others (Under Development) with collaboration with our
 Brake Blocks partners
 Shock Absorbers
 Fire Retardant Vestibules
 Air suspension control equipment
 FIBA and Air springs Couplers
 Axle Mounted Disc Brake System. Passenger Coaches
 Air Brake and Accessories

Physical targets per Railway Budget
 Piping
Wagons
 Brake Blocks.
FY20 FY21
Rolling Stock FY14 FY15 FY16 FY17 FY18 FY19
(RE) (BE)
 Feed Valves
Diesel Loco 385 355 341 364 296 129 - -
 Dampers
 Brake Blocks Electric Loco 302 250 280 294 377 625 725 725
 Coupler Coaches 3,887 3,731 4,099 4,321 4,494 6,074 8,026 6,534
 Computer Controlled Brake System Locomotives Wagons 9,326 11,151 13,412 12,323 6,290 9,595 13,000 12,000
 Traction System.
 EP / Pneumatic Brake & Accessories YoY (%) FY14 FY15 FY16 FY17 FY18 FY19
FY20 FY21
(RE) (BE)
 Dampers
 Semi Permanent Couplers
Diesel Loco - -8% -4% 7% -19% -56% -100% 0%
 Brake Blocks
 Parking Brake Electric Loco - -17% 12% 5% 28% 66% 16% 0%
 Air suspension control equipment EMUs
Coaches - -4% 10% 5% 4% 35% 32% -19%
 FIBA and Air springs.
Wagons - 20% 20% -8% -49% 53% 35% -8%

ESC is present across rolling stock categories; expect muted growth in rolling stock additions and metro projects in FY21E per the Railway Budget.
However, expect demand growth to be led by replacement/refurbishment demand
Outlay on Major heads per the Railway Budget
Rs. Bn YoY (%)
Rs. Bn FY14 FY15 FY16 FY17 FY18 FY19 FY20 (RE) FY21 (BE) FY15 FY16 FY17 FY18 FY19 FY20 (RE) FY21 (BE)
New Lines (Construction) 58 71 202 143 82 94 85 125 22% 185% -29% -43% 15% -10% 47%
Gauge conversion 31 37 36 38 29 42 32 28 19% -3% 6% -24% 46% -25% -11%
Doubling 30 39 105 91 112 154 238 215 30% 169% -13% 23% 37% 55% -10%
Electrification 13 14 23 29 38 59 76 63 8% 64% 26% 31% 56% 28% -17%
Rolling Stock 175 165 194 196 201 283 417 351 -6% 18% 1% 3% 41% 47% -16%
Leased Assets - Payment of Capital Component 50 54 63 70 80 91 106 119 8% 17% 11% 14% 14% 16% 13%
Road Safety 20 22 47 32 32 35 37 44 10% 114% -32% 0% 10% 5% 18%
Track Renewals 50 54 44 51 77 97 85 106 8% -19% 16% 51% 26% -13% 25%
Investment in undertakings 7 6 46 0 0 29 166 174 -14% 667% -100% 0% 0% 473% 4%
Investment in Non. Govt and JVs/SPVs 40 46 54 71 49 98 - - 15% 17% 31% -31% 99% -100% 0%
Metro Projects 9 10 13 14 8 12 16 14 11% 30% 8% -43% 45% 36% -11%
Passenger Amenities 9 9 11 10 13 16 19 27 0% 22% -9% 30% 22% 19% 45%
Others 48 60 97 354 299 323 287 344 25% 62% 265% -16% 8% -11% 20%
Total 540 587 935 1,099 1,020 1,334 1,564 1,610 9% 59% 18% -7% 31% 17% 3%

Timelines of new product introductions/approvals/certifications
 In YTD20, ESC got approval for two major brake systems which would commence field validation trials. These are expected to be commercialized by FY21E.
FY20  ESC has indicated that its primary growth in the coming years will be through the new products, particularly with railways introducing new class of coaches and
locomotives.
FY19  ESC collaborated with Yujin Machinery Ltd., South Korea, for high speed brakes and metro breaks system
 ESC showcased its new and state-of-the-art offerings including high-end AARH couplers, EP brakes, BMBS, LHB dampers and locomotive brake electronics,
besides different types of rubber and friction material, railway braking systems, railway brake electronics, coupling systems and suspension systems.
 ESC became one of the few Indian companies to be International Railway Industry Standard (IRIS) Certified
FY18  Launched new type of EP brake systems for the Mumbai Rail Vikas Coaches (MRVC).
 Launched axle-mounted disc brake systems that are the mainstay of the Indian Railways; ESC is the only Indian company to receive approval for the same
 Successfully designed the Microprocessor Controlled Brake System (MCBS) and its related test simulator wherein all conditions relevant to locomotive braking
(whether in India or overseas) can be simulated and is in the process of filing for patent ownership of the technology
 Received approval for bogie mounted brake systems from the Indian Railways; commenced commercial supplies
 Received approval for the shock absorber system (used in advanced coaches) from the Indian Railways
 Launched axle-mounted disc brake systems
FY17  Created a robust R&D set-up with a 30-member team drawn from companies like Bombardier and Alstom; this reflects our increasing focus on technology and
innovation
 Invested in sophisticated machinery; all high-end work was executed inhouse which helped protect design integrity, confidentiality and quality cum-cost
control; higher automation helped rationalize the workforce
 ESC lined up two new product launches which includes bogey mounted brake system (testing completed) and axle mounted brake system (ongoing testing).
FY16
These products combined have an addressable market size of Rs. 3 bn
Page 53
Expect railway equipment division revenue to register 16% CAGR through FY20E-FY22E led by new product introductions
Led by new product introductions – particularly Air Brake System- Passenger (Axle Mounted) and Freight (Bogie Mounted), expect revenue CAGR of ~16% through FY20E-FY22E;
localisation efforts for these products is expected to bear fruit from FY22E onwards, aiding EBIT margins
8,000 40%
37% 6,766 19.9% 20.0%
7,000 35% 19.0% 19.0%
5,884
6,000 30%
4,986
5,000 27% 25% 13.9%
3,941 12.7%
4,000 20%
2,86618% 18%
3,000 2,425 15% 15%
2,000 9% 10%
1,000 5%
- 0%
Revenue (Rs. M.n.) YoY (%) EBIT (%)
ESC’s order book continues to be robust …. ….the proportion of new products in overall revenue is on the rise
153.8% 5.0
125.8% 128.6% 4.9
4.5 4.5
4.0 4.0
3.3 3.5 58% 56%
3.0 73% 66%
1.8 100.0%
1.3 1.6 1.5 40.0%
1.0 1.1 59.1% 25.0%
50.0% 36.4% 33.3% 42% 44%
27% 34%
0.0%
1QFY17
2QFY17
3QFY17
4QFY17
1QFY18
2QFY18
3QFY18
4QFY18
1QFY19
2QFY19
3QFY19
4QFY19
1QFY20
2QFY20
3QFY20
4QFY19 1QFY20 2QFY20 3QFY20
Order Book (Rs. B.n.) YoY (%) New Products as % of revenue Conventional products

Corporate Governance
The Board consists of 10
Mr. Nikhil Mr. Hardeep Mr. P H Mrs. Vibha Dr. Sutanu Ms. Nitasha Mr. Shailendra Mr. Sunil Kant
BOD member Mr. G B Mathur Mr. D J Kakalia
Nanda Singh Ravikumar Paul Rushi Behuria Nanda Agrawal Munjal
Audit Committee Member Chairman Member Member
Corporate Social Responsibility Committee Chairman Member Member Member
Risk Management Committee Chairman Member
Nomination and Remuneration Committee Member Chairman Member Member
Stakeholders’ Relationship Committee Chairman Member Member

Source: Annual Report; Spark Capital Research
Mr. Bharat Madan ( Group CFO) is a member of the Risk Management Committee
Remuneration of Top Management & BOD trends over the last three years (Rs.mn)
2019 Vs 2018 2018 Vs 2017
Director Designation 2019 2019 % of PAT 2018 2018 % of PAT 2017
(%) (%)
Mr. Nikhil Nanda Chairman and Managing Director 113 2.3% 11% 102 3.0% 86 19%
Mr. Hardeep Singh Non-Executive and Non-Independent Director 2 0.0% 18% 2 0.1% 1 28%
Mr. P H Ravikumar Non-Executive and Independent Director 2 0.0% 18% 2 0.0% 1 28%
Mrs. Vibha Paul Rushi Non-Executive and Independent Director 2 0.0% 26% 2 0.0% 1 40%
Dr. Sutanu Behuria Non-Executive and Independent Director 2 0.0% 22% 2 0.0% 1 43%
Mr. G B Mathur Non-Executive and Non-Independent Director 0 0.0% 31% 0 0.0% 0 45%
Ms. Nitasha Nanda Executive and Non-Independent Director 32 0.7% 9% 30 0.9% 25 20%
Mr. D J Kakalia Non-Executive and Independent Director 1 0.0% 27% 1 0.0% 1 30%
Mr. Shailendra Agrawal Executive and Non-Independent Director 1 0.0% NA NA NA NA NA
Mr. Sunil Kant Munjal Non-Executive and Independent Director NA NA NA NA NA NA NA

Total 156 3.22% 10% 141 4.1% 117 21%
Mr. Sunil Kant Munjal was appointed as an Additional and Independent Director on May 07,2019.
Mr. Shailendra Agrawal was appointed as an Additional director and designated Executive Director w.e.f March 22, 2019. His remuneration is the remuneration paid from March 22,2019- March 31, 2019
FY18 total remuneration includes Rs.1.1mn paid to Mr. Ravi Narain(independent director)
Page 55
Corporate Governance
2017 2018 2019
Total No. of Directors 9 9 10

Board of Directors
No. of Independent Directors 4 5 5
2017 2018 2019
Auditors
Auditor S. N. Dhawan & Co. LLP Walker Chandiok & Co LLP Walker Chandiok & Co LLP
(In Rs.Mn) 2017 2018 2019

st
Contingent Liabilities outstanding as on March 31 1,033 965 687
Contingent Liabilities
Contingent Liabilities as a % of Networth 0.4% 0.3% 0.3%
Source: Company, Industry. Spark Capital Research
Page 56
CMP (Rs.)
8.0
11.0
14.0
17.0
20.0
23.0
5.0
P/E Band
200
400
600
800
0
1,000
1,200
1,400
Mar-15 Mar…
Apr-15 Apr…
May-15 Ma…
Valuation bands
Jun-15 Jun…
Jul-15 Jul-15
Aug-15 Aug…
Sep-15 Sep…
Oct-15 Oct…
Source: Bloomberg, Spark Capital Research

Nov-15
PE and Standard Deviation Bands

Nov…
Dec-15 Dec…
Jan-16 Jan…
Feb-16 Feb…
Mar-16 Mar…
Apr-16 Apr…
May-16 Ma…
Jun-16 Jun…
Jul-16 Jul-16
Aug-16 Aug…
Sep-16 Sep…
Oct-16 Oct…
Nov-16 Nov…
Dec-16
Dec…
Jan-17
Jan…
Feb-17
Feb…
Mar-17
Mar…
Apr-17
Apr…
May-17
Ma…
Jun-17
Jun…
Jul-17
Jul-17
Aug-17
Aug…
Sep-17
Sep…
Oct-17
Oct…
Nov-17
Nov…
Dec-17
Dec…
Jan-18
Jan…
Feb-18
Feb…
Mar-18
Mar…
Apr-18
Apr…
May-18
Ma…
Jun-18
Jun…
Jul-18
Jul-18
Aug-18
Aug…
Sep-18
Oct-18 Sep…
Oct…
Nov-18
Dec-18 Nov…
Jan-19 Dec…
Feb-19 Jan…
Mar-19 Feb…
Apr-19 Mar…
May-19 Apr…
Jun-19 Ma…
Jul-19 Jun…
Aug-19 Jul-19
Sep-19 Aug…
Oct-19 Sep…
Nov-19 Oct…
Dec-19 Nov…
Jan-20 Dec…
Feb-20 Jan…
Feb…
5x
8x
11x
17x
20x
14x
Average PE, 13.4
-2 SD, 6.0
+1 SD, 17.2
-1SD, 9.7
+2 SD, 20.9
Page 57
Financial Summary
Abridged Standalone Financial Statements
Rs. mn FY14 FY15 FY16 FY17 FY18 FY19 FY20E FY21E FY22E
Profit & Loss
Revenue 62,915 39,858 34,594 40,932 49,951 61,964 60,614 66,101 73,593
Gross profit 17,810 11,372 10,502 13,007 16,294 19,557 19,780 22,144 24,654
EBITDA 3,812 1,614 1,683 3,237 5,572 7,333 6,855 7,778 8,762
Depreciation 832 661 588 631 725 854 1,040 1,136 1,223
EBIT 2,980 953 1,095 2,606 4,847 6,479 5,815 6,642 7,540
Other Income 814 606 567 435 594 809 835 1,002 1,284
Interest expense 1,107 571 537 311 286 185 159 124 124
Exceptional items 36 -306 -123 38 -68 109 -92 0 0
PBT 2,724 683 1,002 2,768 5,088 7,212 6,398 7,520 8,700
Reported PAT (after minority interest) 2,449 747 837 1,604 3,447 4,849 4,859 5,627 6,510
Adj PAT 2,449 747 837 1,604 3,447 4,849 4,859 5,627 6,510
EPS (Rs.) 28.6 8.7 9.4 18.1 38.8 54.6 54.7 63.3 73.2
Balance Sheet
Net Worth 18,314 17,963 18,377 19,912 25,481 30,229 34,734 39,953 45,990
Deferred Tax -74 -478 -409 -470 197 529 529 529 529
Total debt 4,362 4,810 3,605 2,628 501 2,769 1,769 1,769 1,769
Other liabilities and provisions 3,955 4,092 3,324 3,654 4,261 4,318 4,224 4,607 5,129
Total Networth and liabilities 26,557 26,387 24,897 25,723 30,440 37,844 41,256 46,857 53,416
Gross Fixed assets 24,220 24,100 24,113 24,221 24,627 25,765 28,265 30,765 32,765
Net fixed assets 16,427 15,830 15,354 15,544 15,578 16,074 17,534 18,897 19,674
Capital work-in-progress 374 555 582 347 641 765 765 765 765
Goodwill 0 0 0 0 0 0 0 0 0
Investments 3,781 3,800 4,348 4,420 4,327 4,886 5,586 5,736 5,886
Cash and bank balances 2,653 2,398 2,542 3,972 7,968 6,212 7,620 10,771 15,192
Loans & advances and other assets 2,585 2,680 1,577 1,503 2,771 4,494 4,396 4,794 5,338
Net working capital 737 1,124 493 -63 -844 5,414 5,356 5,893 6,561
Total assets 26,557 26,387 24,897 25,723 30,440 37,844 41,256 46,857 53,417
Capital Employed 18,821 18,495 17,225 17,649 21,852 28,640 31,446 36,514 42,402
Invested Capital (CE - cash - CWIP) 15,794 15,542 14,101 13,330 13,244 21,664 23,062 24,979 26,445
Net debt 1,709 2,412 1,063 -1,344 -7,467 -3,443 -5,851 -9,002 -13,423
Cash Flows
Cash flows from Operations (Pre-tax) 4,026 213 2,141 3,452 5,742 -241 7,500 8,103 9,234
Cash flows from Operations (post-tax) 3,466 22 2,217 3,008 4,722 -2,407 5,961 6,210 7,044
Capex -1,184 -517 -537 -784 -1,147 -1,499 -2,500 -2,500 -2,000
Free cashflows 2,283 -495 1,680 2,224 3,575 -3,906 3,461 3,710 5,044
Free cashflows (post interest costs) 1,176 -1,066 1,144 1,912 3,289 -4,090 3,302 3,586 4,920
Cash flows from Investing -624 187 -263 -1,397 -3,784 -136 -4,700 -6,150 -7,650
Cash flows from Financing -2,357 -108 -1,949 -1,379 -2,499 1,917 -1,353 -409 -473
Total cash & liquid investments 2,653 2,398 2,542 3,972 7,968 6,212 7,620 10,771 15,192
Page 58
Financial Summary
Abridged Standalone Financial Statements
FY14 FY15 FY16 FY17 FY18 FY19 FY20E FY21E FY22E
Growth ratios
Revenue 61.6% -36.6% -13.2% 18.3% 22.0% 24.0% -2.2% 9.1% 11.3%
EBITDA 109.2% -57.7% 4.3% 92.4% 72.1% 31.6% -6.5% 13.5% 12.7%
Adj PAT 251.8% -69.5% 12.0% 91.7% 114.9% 40.7% 0.2% 15.8% 15.7%
Margin ratios
Gross 28.3% 28.5% 30.4% 31.8% 32.6% 31.6% 32.6% 33.5% 33.5%
EBITDA 6.1% 4.0% 4.9% 7.9% 11.2% 11.8% 11.3% 11.8% 11.9%
Adj PAT 3.9% 1.9% 2.4% 3.9% 6.9% 7.8% 8.0% 8.5% 8.8%
Performance ratios
Pre-tax OCF/EBITDA 105.6% 13.2% 127.2% 106.6% 103.0% -3.3% 109.4% 104.2% 105.4%
OCF/IC (%) 21.9% 0.1% 15.7% 22.6% 35.7% -11.1% 25.8% 24.9% 26.6%
RoE (%) 14.2% 4.1% 4.6% 8.4% 15.2% 17.4% 15.0% 15.1% 15.2%
RoCE (%) 20.7% 8.4% 9.3% 17.4% 27.6% 28.9% 22.1% 22.5% 22.4%
RoCE (Pre-tax) 20.7% 8.4% 9.3% 17.4% 27.6% 28.9% 22.1% 22.5% 22.4%
RoIC (Pre-tax) 18.8% 6.1% 7.4% 19.0% 36.5% 37.1% 26.0% 27.7% 29.3%
Fixed asset turnover (x) 2.7 1.6 1.4 1.7 2.0 2.5 2.2 2.2 2.3
Total asset turnover (x) 2.4 1.5 1.3 1.6 1.8 1.8 1.5 1.5 1.5
Financial stability ratios
Net Debt to Equity (x) 0.1 0.1 0.1 (0.1) (0.3) (0.1) (0.2) (0.2) (0.3)
Net Debt to EBITDA (x) 0.4 1.5 0.6 (0.4) (1.3) (0.5) (0.9) (1.2) (1.5)
Interest cover (x) 3.1 0.0 4.1 9.7 16.5 (13.0) 37.5 50.2 56.9
Cash conversion days 4 10 5 -1 -6 32 32 33 33
Working capital days -4 -3 -13 -20 -17 33 33 34 34
Valuation metrics
Fully Diluted Shares (mn) (adjusted for treasury shares) 86 86 89 89 89 89 89 89 89
Market cap (Rs.mn) 56,350
P/E (x) 22.2 72.6 67.3 35.1 16.3 11.6 11.6 10.0 8.7
P/OCF(x) 16.3 2,538.3 25.4 18.7 11.9 (23.4) 9.5 9.1 8.0
EV (Rs.mn) (ex-CWIP) 58,059 58,762 57,413 55,006 48,883 52,907 50,499 47,348 42,927
EV/ EBITDA (x) 15.2 36.4 34.1 17.0 8.8 7.2 7.4 6.1 4.9
EV/ OCF(x) 16.7 2,646.9 25.9 18.3 10.4 (22.0) 8.5 7.6 6.1
FCF Yield 4.1% -0.9% 3.0% 3.9% 6.3% -6.9% 6.1% 6.6% 9.0%
Price to BV (x) 3.1 3.1 3.1 2.8 2.2 1.9 1.6 1.4 1.2
Dividend pay-out (%) 6.3% 13.7% 12.7% 8.3% 6.3% 6.0% 6.0% 6.0% 6.0%
Dividend yield (%) 0.3% 0.2% 0.2% 0.2% 0.2% 0.3% 0.4% 0.4% 0.5%
Page 59
Crystal Ball Gazing
Expect ESC to continue to build on its market share gains in the tractor segment – through greater inroads in the South and West
markets - as well as the benefits from the Kubota JV. Expect railway segment to continue to grow basis the government’s
continued focus on railways and modernization. Expect margins to be aided by localisation efforts and benefits of operating
leverages.
Expect moderate revenue growth over the medium Expect exit multiples to continue to be constrained
Return ratios to continue to be healthy, led by robust
term led primarily by the tractor segment, aided by by overwhelming dependence on the cyclical tractor
asset turns and WC days.
underlying industry growth and market share gains and construction equipment segments
FY09-FY11 FY11-FY14 FY15-FY19 FY19-FY23E FY09-FY11 FY11-FY14 FY14-FY19 FY19-FY23E P/E multiple FY23E EPS (Rs.) Price target (Rs.)
Revenues CAGR 17.4% 24.8% 11.7% 10.1% RoE (%) 5.5% 8.4% 9.9% 15.1% 12.0x 73 1010
Avg. Gross Margin 30.9% 27.9% 31.0% 33.3% RoCE (%) 12.8% 13.1% 18.3% 22.3%
EBITDA CAGR 55.5% 37.3% 46.0% 12.7% RoIC (%) 9.2% 11.5% 21.2% 28.5%
Avg. EBITDA margin 6.5% 5.1% 8.0% 11.8% Average 1 yr fwd
EPS CAGR 220.6% 34.6% 59.6% 15.4% PE (x) n/a n/a 30.3 28.7
Avg. Total Asset Turnover EV/EBITDA (x) n/a n/a 14.7 13.6
1.1 1.8 1.6 1.5
(x)
Peak 1 yr fwd
Avg. Total WC days 4 2 -4 34
Avg. Pre-tax OCF/EBITDA PE (x) n/a n/a 42.2 42.2
105.3% 101.7% 69.4% 106.8%
(%) EV/EBITDA (x) n/a n/a 19.7 19.0
Avg. Post Tax OCF as a %
11% 13% 13% 26%
of IC
Avg. Net Debt/EBITDA 1.7 1.3 (0.0) (1.4)
TOTAL
Entry = Rs. 634@ 8.7x Cumulative Dividends of PAT CAGR of ~15%, RETURN OF
FY22E EPS Rs.8/share through FY20E-FY22E 60%
Page 60
Spark Disclaimer
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Whether the Spark and its associates has been engaged in market making activity of the Subject Company No
Whether the research entity or its associates, has actual/beneficial ownership of one per cent. or more securities of the subject company, at the end of the month immediately preceding the date of publication
No
of the research report
*I, Ramakrishnan Seshan, hold 101 no. of shares in Endurance Technologies.
Page 61
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The views expressed in this research report accurately reflect the analyst’s personal views about any and all of the subject securities or issuers; and no part of the research analyst’s compensations was, is or will be, directly or
indirectly, related to the specific recommendation or views expressed in the report.
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pursuant to the exemption in Rule 15a-6 and any transaction effected by a U.S. customer in the securities described in this report must be effected through LXM LLP USA.
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all of the subject companies and securities and (2) no part of his or her compensation was, is or will be directly or indirectly dependent on the specific recommendations or views expressed in this report. Please bear in mind that
(i) Spark Capital Advisors (India) Pvt. Ltd is the employer of the research analyst(s) responsible for the content of this report and (ii) research analysts preparing this report are resident outside the United States and are not
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reliable. None of Spark Capital Advisors (India) Pvt. Ltd accepts any liability or responsibility whatsoever for the accuracy or completeness of any such information. All estimates, expressions of opinion and other subjective
judgments contained herein are made as of the date of this document. Emerging securities markets may be subject to risks significantly higher than more established markets. In particular, the political and economic
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LXM LLP USA assumes responsibility for the research reports content in regards to research distributed in the U.S. LXM LLP USA or its affiliates has not managed or co-managed a public offering of securities for the subject
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BUY Stock expected to provide positive returns of >15% over a 1-year horizon REDUCE Stock expected to provide returns of <5% – -10% over a 1-year horizon
Absolute Rating
Interpretation
ADD Stock expected to provide positive returns of >5% – <15% over a 1-year horizon SELL Stock expected to fall >10% over a 1-year horizon
SPARK CAPITAL ADVISORS | Board: +91.44. 4344 0000 | www.sparkcapital.in

Spark Capital Advisors (India) Pvt. Ltd. is a SEBI registered Research Analyst bearing SEBI Registration No. INH200001459
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ESCORTS

March 17, 2020

 MUKESH SARAF  [email protected]  +91 44 4344 0041

FY19 61,964 11.8% 4,849 54.6 28.9% 17.4%

FY20E 60,614 11.3% 4,859 54.7 22.1% 15.0%

FY21E 66,101 11.8% 5,627 63.3 22.5% 15.1%

FY22E 73,593 11.9% 6,510 73.2 22.4% 15.2%

Source: Company, Spark Capital Research Page 4

Jun-00 Jun-01 Jul-02 Nov-02 Feb-03 Apr-03 Jun-03 Jan-04

Dec-18 Aug-18 Aug-16 Feb-13 Oct-09 Sep-06 Mar-06 Sep-05

Net Debt to Equity Investments as % of Capital Employed Page 5

Employee  Not operational. The Company is presently engaged in recovery

Sole beneficiary interest in Escorts Benefit

Escorts Consumer Credit Limited 29.4% 0.0%  Financing Activity

Snapshot of ESC’s major business segments

 ~40% market share in cranes, ~10% market share in

 Healthy reservoir levels – bodes well for upcoming kharif

ESC – Snapshot of operations

FY15 FY16 FY17 FY18 FY19 FY20E

..led by sustained cost containment efforts particularly on RMC and employee

11.8% 11.3% 13.6%

1,614 1,683 3,237 5,572 7,333 6,855

ESC – Snapshot of operations : Cost reduction and containment efforts

FY12 FY12-FY14 FY15 FY16 FY17 FY18 FY19 9mFY20E

Manpower expenses FY14 FY15 FY16 FY17 FY18 FY19

Employee Costs - ex KMP

ESC – Snapshot of operations : Cost reduction and containment efforts

International Tractors 37,726 40,195 35,158 40,505 45,791 53,145 n/a

TAFE 27,788 25,652 22,374 23,713 27,441 n/a n/a

EBIT (%)* International Tractors

Employee Costs as % Other Costs as % of

ESC – Snapshot of operations

P/E EV/EBIDTA Revenue EBITDA PAT RoCE (%)

Source: Company, Industry, Spark Capital Research

While overall spending by the Ministry of

Budgeted spending under the

Length of cycle (yrs) 5 5 2 5

Source: Spark Capital Research General General General General

Source: Spark Capital Research

36% 37% 36% 34%

FY14 FY15 FY16 FY17 FY18 FY19 FY20E

Average reservoir levels (Mar) Tractor Volumes YoY (%)

Source: Spark Capital Research

FY14 FY15 FY16 FY17 FY18 FY19 FY20E

Source: Spark Capital Research

Source: GoI, Spark Capital Research

Budgeted government spending on rural schemes is expected to continue to be robust in FY21E

Source: Company Source: Company

Budgeted government spending on rural schemes is expected to continue to be robust in FY21E

20.2% 20.2% -4.3% 5.5%

Source: Company Source: Company

Farm Loan Waivers

Dec-18 Rajasthan 180 2,00,000 3.0 7.7 39% ~40% disbursed 3% 7% 1% 9%

Complete waiver of loans

Dec-19 Telangana 320 1,00,000 4.6 5.9 77% No Updates 5%

Rs. 5000 /acre for two

Rs. 5000 p.a. for next 5

Rs. 10000 p.a. (Rs. 4000 if

% of volumes YTD20 Subsidy scheme for FY19

Telangana/ Telangana: Rs. 300,000 Tel: 12000 tractors