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STUDENT DECLARATION
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TABLE OF CONTENTS
SECTION 1ESCORTS - AN OVERVIEW
1.1. COMPANY HISTORY
1.2. MISSION , VISION & VALUE
1.3. BUSINESS SECTORS
1.4. CORPORATE INFORMATION
1.5. FINANCIAL STRUCTURE AND HIGHLIGHTS
RECOMMENDATIONS
BIBLIOGRAPHY
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EXECUTIVE SUMMARY
If development capital is what establishes a business, working capital is what keeps it going. One
of the most common downfalls of business is unexpectedly high running cost. What is important
is not just the size of operating costs, but the cash flows - that is when money has to be paid outin relation to the stream of income arriving in. Thus Working Capital Management is of prime
importance.
This project is a small attempt to study the working capital management in Escorts Agri
Machinery Group. The project work can be divided into two sections.
Analysis of the working capital position of the company using ratio analysis
Study of Working Capital Management Techniques.
Ratio analysis has been done on the basis of three years data. For calculating various ratios 300
days have been taken as number of working days after deducting Sundays and holidays. To
analyze the performance, published Balance sheets of Escorts Limited (and not Escorts
Consolidated) have been used. This project report is based on financial data up to 2010-2011
only, as companys financial year is 1 st October to 30 th September and its accounts for the current
period will close only after 30 th September.
Working Capital Management basically comprises of:
Receivables Management Inventory Management
Cost management is the process by which companies control and plan the costs of doing
business. Individual projects should have customized cost management plans, and companies as
a whole also integrate cost management into their overall business model. There is no singleaccepted definition for this term, because it has such broad applications and possible strategies.
When properly implemented, cost management will translate into reduced cost of production for
products and services, as well as increased value being delivered to the customer.
Cost Management basically comprises of:
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Cost Reduction Cost Control
Escorts is maintaining the following records which is indicative of its professional approach:
Maintaining proper set of accounting records Maintaining an accurate cashbook reconciled with the bank statement Maintaining monthly statement showing profit performance and the working capital
position
Monitoring Receivables daily Making a regular forecast of cash requirements based upon planned sales volume Ageing of debtors/creditors with comparisons to previous months .
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Tractor Market in India: An AnalysisINTRODUCTION
The Indian tractor market is dominated by low price, no frills, rugged, versatile and low to
medium powered tractors. The farmer, a major consumer, is not willing to pay a premium forsophisticated and modern technology, which can reduce fatigue, emission, noise etc. Tractors are
normally categorized on the basis of power of the engine measured in horsepower (HP) as
follow-
Less than 20 HP 20-30 HP (Small Size) 31-40 HP (Medium Size)
41-50 HP (Large sized) 51 HP and above (very large sized).
In India, the popular range of tractors is 20-40 HP compared to 60 Hp in Europe and 90
HP in the USA. The reason being that in India most farms are small and fragmented and
large tractors would work out to be economically unviable. However, over the past few
years, an interesting trend has been the increasing sales of high-powered tractors, particularly
in states of MP, Gujarat, Maharashtra, Punjab, Haryana and UP recently, where farmers link
it to being a status symbol.
Tractors available in developed countries have advanced features and accessories not
found in Indian tractors. However, Indian tractors have an advantage of lower prices.
Currently, there are seven major players controlling about 99% of the market. M&M has
emerged as the leader during the last 3-4 years. A few international players like New
Holland, John Deere and Stey have also set up facilities in India. But hoses players have
entered the higher powered category and, thus, pose little threat to the existing players who
enjoy advantages of established distribution/service network and strong brand equity.
Tractors form an integral part of farm mechanization and have a crucial role to play in
increasing agricultural productivity. In India, 90% of the tractors are financed by bank credit
at concessional rates. Availability of credit, therefore, is the most crucial factor impacting
tractor demand. Increased use of irrigation facilities, shift towards multi-cropping,
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consolidation of lands holdings, promotion of cooperatives and higher investment in
agriculture also contributes to higher tractor demand.
After three years of decline, tractor industry grew by 11.5% in 2003-04 to a level of 1.92
lack tractors. The Indian tractor industry had been growing at an average compounded annualgrowth rate of 8% over the last three decades and attained a peak of 2.70 lacks tractors in
1999-2000. Since then, however the industry declined to a level of 1.72 lacks tractors in the
year 2002-2003, a decline of 33.3% over three years.
Despite the steep decline in the industry, Escort consciously decided to aggressively sell
3500 units in 2003-04 on top of approximately 8500 units reduced in the previous year. This
has not only impacted their revenue and profits but has also enable the company to optimize
its cash flow.
Future of Tractor industry
The tractor industry in India has been on growth trajectory since the second half of 2003-
2004,after going through a bad phase for 4 consecutive years. The key factors driving this
growth are increasing farm incomes, aggressive financing resulting in easy availability of lowcost credit, sharp inventory correction and strong export growth.
The demand in tractor industry is expected to grow mainly due to the agriculture sector,
with the expected increase in agricultural production. Also the shift in trend for demand towards
higher HP tractors is expected to continue. This will be further strengthened by the launch of
new models. In the next 2-3 years demand for the tractors is expected to increase significantly in
the eastern states, where traditionally tractor usage has been low. Export are expected to increase
significantly as several Indian players are targeting the hobby farming segment in the US,which is considerably large. Also, tractors of most Indian manufactures comply with the
emission standards accepted in the US. Most experts are likely to be through overseas
partnership or joint ventures. McKinney has also forecasted tractor population requirement of 75
Lacks over the next 18 years vs. current tractor population of 26 lacks. The extension of the 150
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percent deduction on R&D expenditure up to March 31,2007. In the budget 2005-06 will also
benefit the industry in the terms of new products development besides increase in the area under
irrigation under the Bharat Nirman project and the micro irrigation scheme.
Tractor industry plays an important part as agriculture sector has a major contribution to Indias
GDP. Tractors are part of agricultural machinery industry. Tractors came to India through
imports and later on were indigenously manufactured with the help of foreign collaborations.
The manufacturing process started in 1961-62. Indian tractor industry is relatively young but
now has become the largest market worldwide.
There are currently 14 players in the industry. Mahindra & Mahindra is the leading player in theindustry. Monsoon season is a key driver for sales of tractors. A series of good or bad monsoon
can affect the sales. In recent years the industry has registered a good growth in sales, both
domestic as well as exports. This is also partly because of the initiative of the government to
boost up agriculture and agricultural machinery industry.
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SECTION 1
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ESCORTS LIMITED
1.1 INTRODUCTION
The Escorts Group, with Escorts Limited as its flagship company, is among Indias leadingcorporations operating in the diverse fields of agri-machinery, telecommunications, healthcare,construction and material handling equipment, automotive and railway ancillaries, informationtechnology, and financial services. The group has 12 modern manufacturing facilities and anextensive marketing network spread across the country.The genesis of Escorts goes back to 1944 when two brothers, H P Nanda and Yudi Nanda,launched a small agency house, Escorts Agents Ltd., in Lahore. Over the years, Escorts surgedahead and evolved into one of Indias largest conglomerates. The foundation of Escorts Ltd. waslaid in the formation of Escorts (Agents) Ltd. on October 17, 1944 and Escorts (Agriculture and
Machines) Ltd. in 1948. The two were later merged in 1953 to form Escorts Agents Private Ltd.The companys incorporation in its present name Escorts Ltd. was effected on January 18,1960. Having initially started as a franchisee for Westing House Domestic Appliances, Escortshas come a long way in manufacturing and marketing a range of products. It pioneered farmmechanization in India through import and distribution of agricultural tractors. Themanufacturing operations commenced in 1954 and since then a range of new products has beenintroduced in the country.
Five Decades of Engineering Change
The Decade of Creation: 1944-54
The launch of Escorts Agents Ltd. in Lahore and setting it up again in Delhi after the countryspartition happened during this period. It also marked the beginning of an industry legend Escortstaking up a tractor franchise followed by the setting up of Indias first institute of farm
mechanization and the companys first industrial venture, Goetze (India) Ltd. at Patiala, in equitycollaboration with Goetze of Germany.
The Decade of Setting up Operations: 1955-64
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It was during this phase that Escorts went public. A fullfledged manufacturing establishmenttook roots with the commencement of Escorts own brand of tractors. The next major field of operations was motorcycles. The company also joined hands with Mahle to produce Indias most advanced pistons.
The Decade of Consolidation: 1965-74
This period witnessed the formation of the Ford- Escortsalliance for Indias finest tractors makingthe group the largest tractor manufacturer. Escorts Employees Ancillaries Ltd., a unique venturein industrial democracy, also came into being around this time. Escorts received the FICCI awardfor outstanding contribution to Indian agriculture. The company crossed national boundaries withits first export of 400 tractors to Afghanistan, which it had won through a global tender. Atriumph of Escorts quality and competitiveness, this was also perhaps the worlds largest ever commercial airlift of its kind.
The Decade of Diversification: 1975-84
This decade marked an epoch-making alliance with JCB for Indias first excavator loadersfollowed by one with Knorr Bremse for railway brakes. With the Yamaha collaboration, Escorts
became the countrys largest motorcycle manufacturer.
The Decade of Globalization: 1985-94
During this phase, Escorts entered into joint ventures with buy-back arrangements with Class(harvester combines) and Herion (hydraulic valves) providing an entry into the world markets. Atie-up with Faun powered the company to supremacy in hydraulic mobile cranes. Thecompany fought an epic battle against a corporate raid, the ultimate victory proving theunshakeable confidence of the companys small shareholders countrywide. The Escorts HeartInstitute was also commissioned in this period. In the sunrise telecom sector, it formed allianceswith JS Telecom, a Bosch company, and Hughes Network Systems, the world leaders in V-SAT
networks.
The Decade Ahead
On assuming the Chairmanship of the group in April 1994, Rajan Nanda undertook a majorrestructuring programme to give a sharper focus to the businesses. This involved building
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alliances with global players and improving market capitalization which resulted in eachbusiness becoming an independent entity with defined partnerships, technology, customers, andbusiness economics.
The recent past also witnessed a major shift in Escorts business focus w hen it broke away fromits traditional identity of being a pure engineering company and made its foray into the servicesectors of cellular telephony and healthcare delivery. The group has sincere-evaluated its focus with a thrust on the areas of high growth, namely, agri-machinery, telecom,and healthcare. As Escorts marches forward, it does so with a clear vision, renewed commitment,and the ability to perform, the ultimate objective being to create value for its shareholders.
Presently, the company has sold its stake in the businesses of motorcycles, earth-movingequipments, combined harvesters, and cellular services to its foreign partners. The idea behindrestructuring was that it could focus in areas where it could create value.
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AGRI MACHINERY
The Indian tractor industry is dominated by low priced, rugged, versatile and low to medium
powered tractors. The main reason being the inability of Indian farmer to invest heavily in farm
mechanization. Tractors are categorized on the basis of horse power of engine. In India thepopular range of tractors is 20-40 hp as compared to 60 hp in Europe and 90 hp in USA. Though
large tractors are economically unviable in India but more recently high power tractors are also
being sold in states like Punjab. Tractors available in India are of one fourth hp as compared to
developed countries. Availability of the credit is the most crucial factor impacting tractors
demand. In India 90% of the tractors are financed by bank credit at concessional rate. Increased
use of irrigation facilities, shift towards high investment in agriculture are responsible for higher
tractor demand in India.India is the worlds largest tractor market since 1996.
Escorts have played a pivotal role in the agricultural growth of India for over five decades. It is
one of the leading tractor manufacturers of the country. Escorts produces tractors in the 30-40
HP and above range and has already sold over 6 lac tractors. Its tractors are marketed under three
brand names, viz. Escorts, Powertrac and Framtrac. Escorts brand of tractors are symbolic of
reliability and trust and enjoy the confidence of the farming community for the last 40 years.
Powertarc brand of tractors are the most fuel-efficient tractors in their respective categories that
offer excellent value for money and have helped the farmers improve their respective categories
that offer excellent value for money and have helped the farmers improve their quality of life.
Framtrac brand are the most powerful premium range of tractors that give maximum productivity
to the farmers. Spanning these three brands, the company has a full range of tractors to cater to
the domestic as well as overseas markets.
The company is developing state-of-the-highly fuel efficient engines with the assistance of AVL
of Austria and has also entered into a joint venture with Carraro of Italy for the manufacturing of
transmission and axles.
To understand the tractor industry, one has to first look at the market segmentation based on HP.
The industry can be spilt into five classes on the bases of horse power.
A - 0-25hp
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B - 26-35hp
C - 33-39hp
D - 40-45hp
E - 46hp-Above
. Among the major player M&M, ESCORTS, PUNJAB TRACTOR& EICHER have a presence
across all the major segments. EICHER which was predominantly a player in the 21-30 hp
segment has now moved upward following the shrinking market in the low hp segment.
To sustain the present momentum and to realize the future goals, Escorts is investing heavily for
strengthening new product development programmes and enhancement of R&D capabilities.
Additionally, funds have been invested towards modernization of its manufacturing facilities
bringing them to international standards. The company has one of the most comprehensive
distribution network comprising of over 1212 dealers, sub dealers, distributors and stockists.
Escorts has over 30 area offices spread across the country. It has a manufacturing capacity of
over 100000 tractors per annum. Escorts Agri Machinery Group is looking at forward and
backward integration through food processing, food chains and genetic engineering. It will be
expanding its product range by launching highly specialized tractors and draft implements.
In line to their vision of becoming a major player in sub 100 HP segment in the global markets,
they have increased their reach from a major regional player to major global markets which
stretch from North America to Australia covering all continents. Despite the strict competition by
other major tractor manufacturers they have been able to gain constant volumes in the global
market.
Their products are marketed mainly in USA, central and Easter Europe through Poland, Ghana,
Tanzania, Malaysia, Australia, Tunisia, Chile, turkey, Sri Lanka, Kenya, Bangladesh, South
Africa and many other countries.
To consolidate its presence in the overseas markets, the company has venture in the USA and
Europe (Poland). It has recently acquired a majority stake in a tractor distributing company in
USA.
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Escorts is selling tractors in Turkey, Australia, Bangladesh, Sri Lanka, Nepal, Kenya, Tanzania,
South Africa etc. through its dealers network in these countries. Escorts have very ambitious
plans to expand the dealers networks in other potential countries in the coming years.
Technological and business collaboration with world leaders over the years, globally competitiveindigenous engineering capabilities, over 1600 sales and service outlets and footprints in over 40
countries have been instrumental in making Escorts the Indian multinational. At a time when the
world is looking at India as an outsourcing destination, Escorts is rightly placed to be the
dependable outsourcing partner of world's leading engineering corporations looking at
outsourcing manufacture of engines, transmissions, gears, hydraulics, implements and
attachments to tractors, and shock absorbers for heavy trailers.
Escorts is one of the country`s biggest tractor makers. The company manufactures farm
equipment, automotive components, railway ancillaries, construction machinery, shock absorbers
and telecom equipment. It has a joint venture with Long Manufacturing of North Carolina for the
manufacture, assembly and sale of tractors.
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Background
In 1960, Escorts set up the strategic Agri Machinery Group (AMG) to venture into tractors.
In 1965, rolled out first batch of tractors under the brand name of Escorts.
In 1969 a separate company, Escorts Tractors Ltd., was established with equity participationof Ford Motor Co., Basildon, UK for the manufacture of Ford agricultural tractors in India.
In the year 1996 Escorts Tractors Ltd. formally merged with the parent company, Escorts Ltd.
Since inception, Escorts Ltd has manufactured over 1 million tractors.
MISSION
For an Enterprise business mission embodies of its endeavor, which acts as a guiding light for
continuous development & growth.
Mission of ESCORTS is:
Engineering Changes through core competency for greater synergy reinforcing bonds with
customers & establishing powerful symbiotic relationship with international allies, preparing
global market. The company wants to make a lasting difference to its shareholders, its customers,
its business associates, its employee and the country as a whole. The company also gives better
quality and better technology to customer and treats every customer as special to build respect
for, and loyalty to, Escorts.
QUALITY POLICY
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We shall strive to continuously improve to meet the ever-rising Expectations of our customers at
the lowest cost.
Each one of us must fulfill the need of our customer, both internal and external with the highest
degree of commitment thereby creating a quality organization geared to ensure total customersatisfaction and the sustained health and prosperity of our business.
Customer Orientation : To fulfill the requirement of our internal and external customer.
Process Orientation : To optimize and harmonize interrelated process rather than individual
functions.
Preventive Behavior : To prevent the mistakes to happen
BRAND:
The Escorts brand shall continue to guard its legacy of being a brand that
customers trust; where employees attain their full potential; and where nation
building is a way of life .
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1.2 THE ESCORTS SYMBOL
The ESCORTS symbol means more than what could be seen by the eyes. It has been prepared
with certain objective and is symbolic in more than one way.
The philosophy behind ESCORTS and the E in the ESCORTS is ENTERPRISE the
hexagon is a symbol of craftsmanship and productivity. The work and people in escorts are
represented by the spanner superimposed on the hexagons which form a letter E.
Escorts the single world company describes the character philosophy & success of the company
which grew leaps and bounds for five decades Escorts has been in the core sectors like
agriculture, transportation & resource for engineering change, through optimum product
performance.
In every step of the way, Escorts had inducted the latest technology by forming alliance with the
most advanced engineering suited to Indian need and situation.
To make sure the finished product and service is delivered, the company has an extra ordinary
distribution & service network that stays with the customers.
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1.3 BUSINESS SEGMENT
Escorts India is one of the leading tractor manufacturers of the country. Escorts offers acomprehensive range of tractors, more than 45 variants starting from 25 to 80 HP. Escort,Farmtrac and Powertrac are the widely accepted and preferred brands of tractors from the house
of Escorts. The company is into the business of manufacturing of agricultural-machinery,construction and material handling equipment, railway equipment, auto ancillary and twowheelers. Escort has its manufacturing facility at Faridabad in Haryana. The company marketsits products thru its outlets and area offices across the country. The company also channelizes itsproducts globally in countries like USA, Poland, Ghana, Tanzania, Malaysia, Australia, Tunisia,Chile, Turkey, Sri Lanka, Kenya, Bangladesh and South Africa.
The agricultural machinery division the company manufactures Tractors and Paddy Tran-planters. Tractors of the company are marketed in the brand names Escort, Powertrac and
Farmtrac. The construction and material handling equipment manufactured are Pick-n-CarryCranes, Front End Loaders, 360 Slew Cranes, Articulated Boom Cranes, and Forklifts. With amillion Escorts tractors rolled out and a production capacity of 100,000 tractors per annum,Escorts tractors are amongst the largest selling tractors in India where every third tractor is aEscorts brand. Escorts has led the modernization of major national infrastructure, fromconstruction to creating high speed highways to railways. Escorts is a leading manufacturer of critical railway component for the last 40 years. The railway equipment division, producesrailway equipments at state of the art manufacturing facility located at Faridabad, near NewDelhi. It has facilities for advance product development, design, testing and validation. The in-house R&D has played a critical role in bringing a high level of customer satisfaction, reliabilityand safety.
Escorts Group
Agri Machinery
ConstructionEquipment
Engineering division
Auto SuspensionParts
Railway EquipmentDivision
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Auto Components Business is the leading manufacturer of auto suspension products. It producesshock absorbers, sturts and telescopic front forks for passenger cars, commercial vehicles,motorcycles and scooters through its auto suspension product development plant. TheAutomotive Component Business located in Faridabad, has an annual production capacity of 5million shock absorbers, front forks, and McPherson struts, manufactured at its state of the artmanufacturing facilities. Another step forward in this direction is a comprehensive technicalcollaboration with world leaders Koyaba of Japan.
92%
5% 3%
Segmental Revenue
Agro MachineryDivision
Railway EquipmentDivision
Auto ComponentDivision
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1.4 CORPORATE INFORMATION
CHAIRMAN & MANAGING
DIRECTOR
Mr. Rajan Nanda
JOINT MANAGING DIRECTOR Mr. Nikhil Nanda
DIRECTORS Dr. M.G.K. Menon, Dr. S.A. Dave, Dr. P.S.Pritam, Mr. S.C. Bhargava
VICEPRESIDENT (LAW & COMPANYSECRETARY) Mr. G.B. Mathur
EXEC. VICE PRESIDENT & GROUPCHIEF FINANCIAL OFFICER
Mr. O.K. Balraj
STATUTORY AUDITORS M/s. S.N. Dhawan & Co.
INTERNAL AUDITORS Grant Thorton
ADVISORS KPMG India Pvt. Ltd.
SOLICITORS Crawford Bayley & Co.
BANKERS
Andhra Bank, Citibank, IDBI Bank, PNB,
SBI, State bank of Hyderabad, State bank of
Patiala
State bank of Travancore.
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1.5 RECENT DEVELOPMENTS:
1) The Hon'ble High Court of Punjab and Haryana at Chandigarh has approved the Schemeof Arrangement between Escorts Agri Machinery Inc., USA and Escorts Ltd. and theirrespective shareholders and creditors for merger / amalgamation of EAMI into Escorts.
2) Escorts Construction Equipment Limited has signed an agreement with theChinese Hunan Zoomlion International Trade Co Ltd for marketing the
latter's truck cranes in India.
3) Powertrac 4455 marks the companys entry in the 4 -cylinder tractorsegment.
4) The companys Net sales and PAT is expected to grow at a CAGR of 10%and 126% over FY08 to FY11E.
5) Escorts arm to market Chinese firm's truck cranes Escorts Construction
Equipment Limited (ECEL), part of the Escorts Group, has signed anagreement with the Chinese Hunan Zoomlion International Trade Co Ltd for
marketing the latter's truck cranes in India.ECEL will market a range of
truck cranes of Hunan Zoomlion, including the 'All-Terrain Truck Cranes'.
Currently ECEL has Pick-n-Carry cranes 5T-23T and Rough Terrain Slew
Cranes 17T-40T under its product portfolio.
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FINANCIAL STRUCTURE AND HIGHLIGHTS OFESCORTS FOR 2010-2011
FINANCIAL STRUCTURE
SOURCE AMOUNT(Rs. Crores)
Equity Shares issued, subscribed and paid-up 102.28 Secured Loan 283.78 Unsecured Loan 14.82
FINANCIAL HIGHLIGHTS
Net Sales up 17% {2011: Rs. 3210 crores (2010 : Rs. 2746crores)} EBIDT down 37% {2011 : Rs. 110.11 crores (2010 : Rs. 175.09 crores)} Interest cost down 75% {2011 : Rs. 12 crores (2010: Rs. 47 crores)}
Profit before tax down28% {2011: Rs. 136 crores, 6.8% of sales (2010: Rs.188 crores) Earnings per share down 20% {2011: Rs. 11.74 (2010: Rs. 14.67)} Consolidated Net Sales up 21% {2011:Rs. 3324 crores (2010: Rs. 4050crores)} Consolidated PAT down by 5 times {2011: Rs.125 crores (2010: Rs. 132 crores)} Consolidated EPS down 13% {Rs. 13.72 against Rs. 15.8 last year}
The consolidation of accounts is prepared in accordance with the requirement of AccountingStandard 21 (AS21)Consolidated Financial Statement, Financial Re porting of Interests inJoint Ventures issued by the Institute of Chartered Accountants of India. The consolidatedfinancial statements include the financial statements of Escorts Limited (the Parent Company),its Subsidiary Companies and Joint Ventures.
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MODERNIZATION OF AGRI-MACHINERY GROUP
Escorts Agri Machinery Group (AMG) has invested over US $7.5 million in state of the Art &
Research and Development Center. Virtual prototypes of components and aggregate assemblies
are made and assembled on computer workstations using 3D technology. Their performance ischecked on computers using simulation techniques thus saving a lot of time for the end-user as
well as lowering development costs. The R&D center uses advanced 3D modeling, analysis and
simulation software for engines, transmission and vehicles. Physical prototypes are then
extensively tested for performance, durability and reliability. Facilities include a high
technology engine laboratory featuring fully computerized test-beds with on line control, data
collection, and analysis.
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Indian Domestic Tractor market trend
X Axis -Sales Volume Y Axis -Year
Sales volume and Y-O-Y growth percentage
Year Sales volume Year on year growth(%)
2007-2008 302948 2%
2008-2009 304622 .5%
2009-2010 402608 32%
2010-2011 480600 19.37%
2011-2012(E) 538300 12%
0
100000
200000
300000
400000
500000600000
sales volume
sales volume
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Domestic tractor sales grew by about 20 per cent in 2010-11. The robust growth rate can be
attributed to normal monsoons in most states, strong farm output with high MSPs (Minimum
Support Prices), increase in farm incomes and steady availability of Finance. In addition,
schemes such as NREGA (National Rural Employment Guarantee Act) led to a shortage of
agricultural labor, encouraging tractor use. Besides, Government initiatives like Bharat Nirman
helped in boosting rural infrastructure, thereby encouraging non-farm tractor use. Sustained
income and relatively low penetration led to a strong growth in the southern and western regions.
In the northern region, the growth was subdued due to flood like Situations in Haryana and
Punjab, and relatively high tractor penetration. The Eastern region also witnessed moderate
growth due to delayed monsoon in Bihar, resulting in a drought like situation, impacting tractor
sales. However still the tractor sales have shown an upward trend from 2009 onwards with
growth increasing at the rate of 30-20% for the year 2009-2010 and 2010-2011.
The industry growth index
Year on Year (growth percentage)
Year 2009 2010 2011 2012(E)
Growth 2% 28% 22% 11%
Owing to an increase in farm income, improving MSPs and higher farm output. Credit
availability will also be stable with NBFCs increasing focus on tractor financing. The key drivers
of rural farm incomes are estimated to grow by 11-14% percent in 2011-12, which will lead to
another year of stable growth, further aiding tractor sales. Government initiatives towards rural
development and usage patterns of farmers represent the major drivers that influence rural
demand. For the current fiscal year 2011-2012 the sales is expected to increase at the rate of
11%-14% so the expected sales of the industry will be around 538300 units.
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The Indian tractor industry has 13 national and a few regional participants. The market share is,
however, concentrated amongst the top-five manufacturers, accounting for over 90% of total
volumes. The Indian tractor industry is dominated by three players namely Mahindra &
Mahindra Limited, TAFE and Escorts; together they contribute around 75 per cent of the total
domestic market as of 2010-11. M&M continued to lead the industry in 2010- 11. M&Ms market
share is double that of TAFE, its nearest competitor. However, the entry of strong MNC players
like John Deere (formerly L&T John Deere), New Holland India and Same Deutz Fahr in the
Indian market during the last five years has further intensified competition.
Company 2008 2009 2010 2011 2012(E)
M & M 37.3% 38.6% 40.1% 39.6% 40.1%
TAFE 22.8% 22.2% 22.2% 21% 23.2%
Escorts 13.6% 12.5% 12.2% 12.1% 10.2%
John Deere 8.2% 9.1% 8.6% 9.8% 9.4%
New Holland 6.7% 6.1% 5.2% 5.9% 5.8%
Others 11.4% 11.5% 11.7% 11.6% 11.3%
Total 100% 100% 100% 100% 100%
Escorts contribution to the whole tractor market
The contribution of escorts to the total industry sales of 480600 has been 63420 that is almost
12.1%% of the sales during the year 2010-2011. The sale of tractors increased by 5.5 percent to
63,420 from 60,086 in the previous year. Even after the increase in the units sold the EBIT
(Earnings before interest and tax) stood at 176.56 crores in comparison to 223.36 crores for the
previous year.
The EBIT did not increase in accordance with the increase in sales due to the factor-
Tractor manufacturers are dependent on ancillaries, which are mostly SMEs, for
components such as castings, steering assemblies, gearboxes and brake assemblies.
Increasing commodity cost. Irregular Monsoon
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Factors that affect the Sales of Tractors in India
A lot of factors affect the sales of agricultural produce in India, they are as follow-
Minimum support price for the agricultural produce Irrigation facility Credit availability facility
Effect of Minimum support price for agricultural produce
What is Minimum support price?
It is the minimum price government fixes for items like rice, wheat etc, mainly groceries.
Wherever an organization purchases the items from the farmers it has to be more than this price.
This Price is the minimum return a farmer can get on its produce. The Farmer can sell its
produce to either government organizations or the private players. MSP acts as a base price for
the agricultural produce, if a farmer is unable to sell its produce the government purchases it for
Public Distribution system in this price.
Recent trends in the minimum support price (per quintal)
Crop 2010-2011 2011-2012 ChangeKharif Crop
Paddy 1030 1110 80cotton 2500 2800 300Jowar 880 980 100
Rabi crop
Wheat 1120 1285 165Mustard 1850 2500 650
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The government announces minimum support prices (MSPs) for major agricultural commodities
each season and organizes purchase operations through the Food Corporation of India, and
cooperative and other agencies designated by state governments. The graph showing MSP for
various important products are as follow-
Changes in the Minimum support price over the years
X axis-Price per quintal Y axis-Year
Conclusion
The strong rural liquidity on back of rising income levels and appreciation of land prices has
been a strong demand driver for growth in tractor volumes. The average income levels in the
rural India have been rising on back of growth in minimum support prices (MSP) offered by the
Government. The trend in MSP for major crops has been shown in the above graph and the
MSPs of Wheat, jowar, cotton and paddy have grown at a healthy Growth Rate of 9-11% during
2004-05 to 2010-2011 period. The MSP has increased substantially from 2011 to 2012 so the
industry can expect increase in the sales of tractors.
0
500
1000
1500
2000
2500
3000
2007-2008 2008-2009 2009-2010 2010-2011 2011-2012
Paddy
jowar
wheat
cotton
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Effect of irrigation facility
Irrigation is the artificial application of water to the land or soil. It is used to assist in the
growing of agricultural crops, maintenance of landscapes, and revegetation of disturbed soils in
dry areas and during periods of inadequate rainfall. Irrigation is one of the most important inputs
required at different critical stages of plant growth of various crops for optimum production. The
Government of India has taken up augmentation of irrigation potential through public funding
and is assisting farmers to create potential on their own farms. Substantial irrigation potential has
been created through major and medium irrigation schemes.
The timing, spatial distribution and magnitude of rainfall under the South-West monsoon are
some variables that influence the Kharif crop output, and in-turn have a bearing on the domestic
tractor market. While it is intuitive to correlate a good monsoon year with strong tractor sales,
with reducing dependence of on rain-fed farming, the impact of monsoons on tractor industry is
reducing. Although the shift from rain-fed agriculture to irrigated farming has been gradual
(~50% of cultivated area in India is still dependent on rains), the percentage of area under
irrigation is particularly high in states such as the Punjab (98% under irrigation), Haryana
(88.5%), Uttar Pradesh (74.9%) and Bihar (63.1%), which have amongst the largest population
of tractors in the country. Also, a scanty monsoon usually leads to appreciation in the prices of
food grains, thereby reducing the impact on the farmers. Further, in case of delayed monsoon,there is a shift towards other Kharif crops with smaller crop cultivation cycles.
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Trend in Monsoon Rainfall and Domestic Tractor Sales
The Graphs above show that there is a relationship between the level of rainfall and the sales of
tractors in the market. But if we compare the 2009-2010 data the rainfall was scanty but still the
sale of tractors increased, this shows that a direct relationship cannot be established between
rainfall and tractor sale.
0
200
400
600
800
1000Average rainfall(mm)
Averagerainfall(mm)
0
100000
200000
300000400000
500000
600000
sales volume
sales volume
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Trend in Tractor Penetration and Irrigation Levels
No. of tractors per 1000 hectares
Area under irrigation (%)
0
10
20
30
40
50
60Statewise tractor penetration
Statewise tractorpenetration
0%10%
20%30%40%50%60%70%80%90%
100%Area under irrigation
Area underirrigation
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Conclusion
The performance of agriculture, however, continues to depend on the monsoons on account of
low irrigation levels in majority of the states (around 54% of the cultivated area in India is
completely dependent on rains for irrigation) as evident from the above graph and the strongcorrelation between tractor penetration and the irrigation levels in various states. Tractor
industry, thus, continues to remain dependent on monsoon in absence of any substantial increase
in the irrigated area which has increased only to 46.8% in 2007-08 from 35.1% in 1990-91.
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Effect of Credit Availability Facility
There exists a strong correlation between farm mechanization and availability of agri-credit.
While scheduled commercial banks are mandated by the Reserve Bank of India (RBI) to meet a
target of 18% of their net banking credit for the agricultural sector, growth is driven by increased
lending by non-banking finance companies; especially in the southern states. The availability of
credit has not been uniform throughout the country. Better finance penetration in Punjab,
Haryana and Uttar Pradesh has led to higher farm mechanization in these states However; limited
activity of financers in certain pockets like the eastern region has prevented these states from
achieving their potential tractor penetration .
Major participants providing agricultural credit are-
Institutional credit flow to agricultural sector
The above graph shows the level of increase in the flow of credit to the agriculture sector. The
credit is basically required for farm mechanization; tractor usage is one of the medium of
mechanization. Credit flow is expected to increase form Rs 385000 crore to Rs 448000 crore i.e
a 16.5% increase from the previous year.
0
50000
100000150000
200000
250000
300000
350000
400000
450000
500000
Agri-credit
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Credit Facility Provider
Public sector banks Private sector banks Non banking financing corporations (NBFC)
In addition to financing availability from PSU banks, the private banks and non-banking
financing corporations (NBFCs) have also increased their presence in tractor financing which has
improved the credit availability for tractor purchases. The NBFCs charge higher interest rates;
however, the same is compensated through faster turnaround times and lesser documentation
requirements. The NBFC penetration has been particularly significant in Sothern India with
around 50% of the tractors being financed through them.
One more source of credit for farmers is KCC- Kisan Credit Cards. Kisan Credit Card Scheme
(KCC) aims at providing adequate and timely support from the banking system to the farmers for
their short-term credit needs for cultivation of crops. This mainly helps farmer for purchase of
inputs etc., during the cropping season. Credit card scheme proposed to introduce flexibility to
the system and improve cost efficiency. The northern states enjoy high KCC penetration while
the penetration in some of the states including Maharashtra, MP, Karnataka, Rajasthan and Biharremain much lower in line with the lower institutional financing availability in these states.
Credit Availability Differ from State to state.
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Institutional Agri credit Availability across states
Sale of tractors across different states
The above two graphs show the relationship between credit availability and sale of tractor in
2011 in different states in India. From the above graph it can be concluded that there is a direct
relationship between credit availability and sale of tractors.
0
10000
20000
30000
40000
50000
60000
70000
Credit availability
Credit availability
0
10000
20000
30000
40000
50000
60000
70000
sale of tractors
sale of tractors
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Financing availability remains one of the key facilitators for increase in tractor penetration and
going forward, the growth in tractor volumes remains dependent on the improvement in credit
availability in states with lower institutional credit penetration. The Governments policy of supporting agriculture through farm credit under priority lending, however, remains a positive
factor.
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Cash flow Management
MEANING
Cash flow management is a process of monitoring, analyzing, and adjusting ones business cash
flows. The most important aspect of cash flow management is avoiding extended cash shortages,
caused by having too great a gap between cash inflows and outflows. Therefore, one needs to
perform a cash flow analysis on a regular basis, and use cash flow forecasting so that one can
take the steps necessary to head off cash flow problems. Cash management involves the efficient
collection, disbursement and temporary investment of cash. The treasurer department of a
company is usually responsible for t he firms cash management system. A cash budget,
instrumental in the process, tell us how much cash we likely to have it, and for how long.
In cash flow management I studied Cash flow Statement
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Cash Flow analysis
Meaning:
A summary of firms cash receipts and cash payments during period of time.
The purpose of cash flow statement is to report a firms cash inflow and outflows, during a
period of time, segregated in to three categories: operating, investing and financing activities.
The statement of cash flow explains changes in cash and cash equivalent such as treasure bill and
the activities that increase and decrease cash. The cash flow statement may be presented using
either a direct method (Which is encouraged by fin ancial accounting standards board) or an
Indirect Method (which is likely to be the method followed by good majority of firms). The
only difference between the direct and indirect method of presentation concern the reporting of
operating activities; the investing and financing activities section would be identical under either
method. Under the direct method, operating cash flow reported directly by major classes of
operating cash receipts (from customers) and payment (to suppliers and employees). A separate
indirect reconciliation of Net income to net cash flow from operating activities must be provided.
The reconciliation starts with reported net income and adjusts this figure for non-cash income
statement items and related changes in balance sheet items to determine cash provides by
operating activities.
Cash flow statement has three activities like as follow :
Operating Activities : - Shows impact of transactions not defined as investigation or financing
activities. These cash flows are generally the cash effects or transactions that enter into the
determination of net income. Thus, we see items that not all statement users might think of as
operating flows -items such as dividends and interest received, as well as interest paid.
Investing Activities ;- Shows impact of buying and selling fixed assets or equity securities of
other entities.
Financing Activities :- Shows impact of all cash transactions with shareholders and the
borrowing and repaying transactions with lenders.
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Implication Of Cash Flow Statement
Cash flow management plays important role the users gets a reasonably detailed picture of a
companys operating, investing and financing transactions involving cash. This three part
breakdown of cash flow aids in assessing the companys current and potential future strength and
weaknesses. Strong internal generation of operating cash, over time would be considered a
positive sign. Poor operating cash flow should prompt the analyst to check for unhealthy growth
in receivable or inventory, Even strong operating cash flow, is not enough to ensure success,
Even strong operating cash flow, is not enough to ensure success, We need to see the extent to
which operating cash is funding needed investment debt reductions and dividends, Too much
reliance on external financing sources to meet recurring needs may be a danger signal.
In short the cash flow statement is a rich resource of information. The difficulty with thisstatement as with the other financial statements is that it must be used in conjunction with other
statements and disclosures in order to attain any real depth of understanding
Importance of Cash Flow Statement
The effects of cash and non-cash investing and financing transaction
A manager can assess the reason for differences between net income and net cash flowfrom operating activities
It is also helpful for a company to generate future net cash inflows from operations to
pay debts, interest and dividends
It gives indication to a companys need for external financing A cash flow statement is straightforward and easy to Understand. It gives a strong indication of how viable the company will be over time.
The extent of success or failure of cash planning can be known by comparing theactual cash statement with the budgeted cash flow statement and remedial measures
can be taken.
It discloses the volume and the speed at which cash flows in different segments of the
business
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This is why analysis of the company's cash flow is necessary to understand its actual financialposition.
Limitations of cash flow statement
Cash flow statement cannot be treated equivalent to income statement because income
statement takes both cash and non cash items and therefore net cash flow does not
necessarily mean net income of the business.
Cash flow statement is a technique of short-term financial position. It does not help
much in knowing the long-term financial position.
Cash flow statement also does not indicate full information about the liquidity position
because liquidity does not depend upon cash alone.
The cash position as depicted by the cash flow statement may not represent the real
liquid position of the business since it can be easily influenced by postponing
purchases and other payments.
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Cash Flow statement
Rs crore
Particular Year ended30.09.2010
Year ended30.09.2011
A. Cash from operating activity
Net profit before tax
Adjustment for:
Gain on sale of long term investment
Gain on sale of asset
Depreciation
Misc. Expenses
Interest Exp.
Dividend income
Interest income
Operating profit before working capital
changes
Adjustments:
Trade and other receivables
Money on escrow account
Inventories
Trade payable
Mics. Expenditure
100.62
-
(0.99)
37.97
15.11
63.06
-
(45.01)
170.76
(45.06)
-
(37.59)
128.26
(.086)
44.75
188.02
(0.10)
(29.67)
(0.80)
38.54
11.86
43.06
(40.24)
210.67
(11.24)
(17.81)
(96.97)
41.34
(1.46)
(86.14)
Cash generated from operating activities
Direct taxes 215.51
(28.37)
124.53
(39.31)
Net cash from operating activities 187.14 85.22
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B. Cash from investing activities
Purchase of fixed Assets
Proceeds from sale of Fixed Assets
Loans and advances
Sale/purchase of investment
Short term deposit with Banks
Interest received
(95.84)
2.74
(12.31)
-
(1.55)
38.69
(48.37)
3.41
(42.46)
(129.90)
(0.26)
54.49
Net cash from investing activities (38.27) (163.09)
C. Cash from financing activities
Proceeds from share capital
Proceeds from long term borrowings
Proceeds from short term borrowings
Interest paid
Dividend and tax paid
-
67.64
6.35
(63.16)
(18.47)
30.52
107.78
(14.96)
(42.90)
(11.03)
Net cash from financing activities (7.64) 69.41
Net change in cash and cash equivalent 111.23 (8.46)
Opening cash as on 01.10.2010 79.53 87.99
Closing cash as on 30.09.2011 190.76 79.53
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Analyzing the Cash Flow Statement
Cash flow statement explains the reasons for this cash inflow or cash outflow. This statement
helps the management in preparation of immediate future plan. With its help, such cases can be
ascertained which explain why the liquidity position is weak despite adequate profits. Thisstatement highlights the financial position policies adopted by business.
We see that escorts reported net profit for 2010-2011 was Rs188.02crores.
Its cash flow from operating activity was Rs.85.22crores. Company spends Rs.48.37crore on
purchase of fixed assets. Company cannot invest in long-term investment because the
requirement of working capital in the company and blockage of funds in the working capital.
From the reconciliation (net income to net cash provided for operating activities) in table, we see
that decrease in trade &other receivable and decrease in inventory but loss on sale of long- term
investment cannot use proper cash in operating activities.
Net cash used in financing activities was Rs67.41crores. It shows that Company did not pay
proper dividend and interest to shareholders. Company either takes cash from long-term
borrowings and sale of long term investment. Because Company did not have own cash.
We should have notice every time that the cash flow statement gives us much of the same
information gathers from the analysis of sources and use of fund s flow statement.