Why Escorts Kubota tractor margins dragged in FY25

Time of India

13-05-2025

New Delhi: Farm and construction equipment maker
Escorts Kubota
Limited (
EKL
) is not expecting to witness a notable growth in the overall
EBIT margin
for the company even as it prepares for a slate of product launches this year. The company expects tractor margins to improve by 50-100 basis points in FY26, though it reiterated that new products generally carry lower initial margins due to introductory pricing and lower volumes.
For the full year ending March 2025, it has reported an EBIT margin of 10.7 per cent for agri machinery products, compared to 11.2 per cent in the previous year. However, there is a sequential improvement in Q4 tractor EBIT margins, supported by a low base and reduced input costs, despite lower operating scale.
In a conversation with ETAuto, Bharat Madan, whole-time director and CFO, Escorts
Kubota
Limited, said, 'As volumes increase and products stabilise, margins should improve accordingly.'
Kubota's reliance on imported components is also a drag on margins. It does not allow the use of Escorts engines in its products. Madan said the use of imported components makes the company vulnerable to forex fluctuations. "While localisation efforts are underway, they will gain momentum once the new greenfield plant is operational, he added. It is setting up a new greenfield plant in
Uttar Pradesh
.
Kubota, a major Japanese tractor maker, entered India in 2008 but saw limited growth initially. Its 2022 acquisition of Escorts marked a turning point, leading to the formation of Escorts Kubota and giving Kubota a stronger foothold in Indian markets by leveraging Escorts' established presence.
EKL is also developing a hybrid structure, selling products under the Kubota brand through the Escorts platform. However, a key challenge has been the lack of clarity over which emission norms should be followed for the product.
Madan noted that overall margin will remain stable at around 11 per cent for FY26, similar to FY25. For the Escorts Kubota, agri machinery business is the largest contributor to the overall sales mix with 81 per cent share, followed by construction equipment at 19 per cent. Within the agri machinery business, about 80 per cent is tractors and 20 per cent is non-tractors.
For the full financial year ended March 2025, EKL said its consolidated net profit grew to ₹1,265 crore when compared to Rs 1,077 crore in FY24. Revenue from operations increased to ₹10,244 crore in FY25 as against ₹9,804 crore in FY24.
The company expects its mid-term plan to be finalised by mid-FY26, with Board approval anticipated by Q4 FY26.
Last year, the company signed a business transfer agreement with Sona Comstar to sell its Railway Equipment Business Division (RED) on a slump sale basis. Now classified as a discontinued operation, the division is being wound down, with closure expected by June 1, 2025 and full completion by the end of September, pending final approvals.
Agri machinery
Escorts Kubota reported FY25 tractor volumes of 1,15,554 units, a 1 per cent increase from FY24. Its current inventory stands at 4–5 weeks. To address portfolio gaps, the company plans to launch the Powertrac series for southern paddy markets in Q3 FY26, mid-segment (40–45HP) Kubota models in Q2, and phase two of the Promaxx series in early Q4.
The domestic tractor industry is growing in the southern region, where EKL has traditionally had limited presence. The company aims to strengthen its footprint in this area. Last year, the industry sold 9.40 lakh tractors, the second-highest volume on record, following the peak of 9.45 lakh units in FY22-23.
Neeraj Mehra - Chief Officer of the company's Tractor Business Division said given the current industry trends and positive forecasts, it is highly probable that this year it will surpass previous records, with the Indian tractor market potentially crossing the 1 million unit milestone for the first time.
The outlook remains optimistic, driven by a favourable monsoon forecast, higher MSPs boosting farmer incomes, and healthy reservoir levels. Stable input costs are supporting margins, while rising non-agricultural use of tractors is further expanding market demand.
Construction equipment
For FY25, the EBIT margin in this segment improved to 9.9 per cent, up from 9.2 per cent in the prior year. The company's margin expectations now stand at 9-11 per cent.
The transition to Trem-V emission norms began in January. EKL said it has managed to liquidate older stocks for most product lines within the last fiscal year.
The market is now seeing products from different manufacturers at various stages of the transition.
Sanjeev Bajaj, Chief Officer of the Construction Equipment Business Division, highlighted that the shift to new emission norms has led to price increases of around 10 per cent for products moving from BS-III to BS-V and 7 per cent for BS-IV to BS-V. He expects the first half of the fiscal year to see a temporary dip in demand due to these price hikes affecting affordability. However, he anticipates a market recovery as economic activity picks up, with a strong performance expected in the next financial year once current challenges are resolved.
New manufacturing footprint
Escorts Kubota, based in Faridabad, has a current manufacturing capacity of 1.7 lakh units. The company's planned Uttar Pradesh facility, will add 100,000 units in the first phase, with a possible second phase based on demand, it will cater to both domestic and export markets, with land acquisition expected by Q3 FY26 and production targeted by FY28–29.
The company has allocated ₹350-400 crore for capex in the current fiscal year, excluding the greenfield project investment, compared to ₹240 crore in the previous year.
EKL exports to over 70 countries, contributing 5–7 per cent of total revenue, with key markets in Europe and Asia. The upcoming facility aims to boost exports to 15 per cent over the next five years through new products and expansion into markets like Mexico (by Q1 FY26) and Southeast Asia, including Myanmar, Cambodia, and Thailand.
However, entry into the US market, which is one of the largest for Kubota, is expected to take time and open the opportunity with production in the greenfield plant.
EKL anticipates export growth of around 20–25 per cent in the current financial year.