What were the key takeaways from the Q3 results of Escorts Ltd?

Escorts faced pressure on the top line and the bottom line in the Dec-21 quarter. On the rural demand front, pressure was evident due to the erratic monsoons. On the profit front, the sharp spike in input costs led to lower operating profits during the quarter. Overall weak rural demand has put a lot of pressure on most tractor companies and Escorts was no exception. Here is a gist of the numbers of Escorts Ltd for the third quarter.

Sales revenues fell -2.84% yoy to Rs.1,984 crore in Dec-21 quarter. The agri machinery business saw revenues fall -8.6% at Rs.1,527 crore yoy. The construction equipment business saw 12.9% growth with sales at Rs.276 crore. The railway equipment vertical grew sharply by 48.7% in the quarter at Rs.174 crore. Tractor volumes at 25,325 units and construction equipment volumes at 1,151 units, saw pressure coming from rural slowdown. The delayed Kharif harvest and unseasonal late rains were the reasons for the weakness.

Operating profits for Dec-21 quarter fell -26.26% yoy at Rs.270.30 crore. EBIT margins of agri machinery increased 76 bps to 15.8% yoy but were lower by 432 bps on sequential basis. EBIT margins of construction equipment fell 114 bps to 2.5% on input inflation. Evan the profitable railway products division saw EBIT margins compress by 296 bps at 14.3%. Operating margins tapered due to inventory costs, from 17.95% in Dec-20 quarter to 13.62% in Dec-21 quarter. OPM was higher sequentially by 16 basis points in Q3.

Net profits for the Dec-21 quarter were sharply down by -32.27% yoy at Rs.194.19 crore due to the substantial operating pressures getting transmitted to the bottom line. As a result, the PAT margins tapered sharply by 425 basis points from 14.04% in the Dec-20 quarter to 9.79% in Dec-21 quarter. PAT margins were lower on a sequential basis by 56 bps.