Escorts restructuring leaves many questions unanswered - Views on News from Equitymaster

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  • May 5, 2000 - Escorts restructuring leaves many questions unanswered

Escorts restructuring leaves many questions unanswered

May 5, 2000

As per a newspaper article, Escorts Ltd (EL) is undertaking a restructuring exercise by which its plans to reduce its presence in the auto ancillary segment and increase its focus in telecom, e-commerce and agriculture. Escorts Ltd manufactures tractors (84.5% of sales in FY99). The company’s existing products are the Escorts 24 HP-40 HP model, Farmtrac 45 HP-75 HP model and Powertrac (30-42 HP) model. Besides the company also has a presence in auto ancillaries, shock absorbers and railway ancillary products. The company reported a turnover of Rs 13.2 bn for FY99.

As per its expansion plans for the telecom sector the company plans on expanding by acquiring two non-metro telecom circles through its subsidiary Escotel. Escotel is a cellular service provider having presence in three circles currently and a customer base of 70,000. EL in its e-commerce foray plans to enter into joint ventures.

The company will be entering into joint ventures in order the get the right technology in place for the above businesses. However certain major issues which need to be addressed and has not been clarified in the article is the amount the company will be investing into these businesses and their strategy of getting into them. Other issues are that they do not have the relevant experience in the above industries and as competition is intense with many large players it will be difficult for them to establish their presence.

Besides the above the company also plans of increasing its exposure to the agriculture sector by getting into food processing, food chains and generic engineering. These are not related to its tractor business and they will take time to prove themselves in the above fields which have large established players already present.

Market View:
Analysts have been positive on Escorts due to its strong position in the tractor market, however areas of concern have been their diversification into telecom, health and infotech. Another concern has been that global players like John Deere and New Holland have entered the Indian tractor market hence increasing competition in the segment.

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