On the industry, I just wanted to hear your thoughts on the lumpiness of the industry, because there are a lot of these state government subsidies which have come in the last couple of months. Does this mean that as these subsidies come off, the industry will see some sort of deceleration? Some thoughts on how we think about F'27 and the impact of these state subsidies on the growth?
Hi, Gunjan. Good evening. This is Neeraj Mehra. So, yes, to a certain extent, you are right that subsidies have played a major role in the growth of the industry. But, subsidies are not the only reason. The primary driver over the last three, four months has been the impact of GST 2.0 plus adequate rainfalls and good reservoir levels. Going forward, yes, the impact will be there if the subsidies come down. But overall, the macroeconomic parameters as also mentioned by Prateek are very positive. So, at this point of time, it is very early to comment on financial year '27, but we see a robust growth in Quarter 4 and also a very robust growth in Quarter 1.
If you were to crystal gaze into the F'27 number, is it fair to say that we are not sort of fearing a sudden downturn hitting us in F'27 because there has been so much bunching up? Can it be like a really down year because we have seen 20%-plus growth for industry in fiscal '26?
So, Gunjan, it will be very early to comment on the entire financial year now. So, we will have a better understanding as we get into Quarter 1 of financial year '27, plus also what the forecast of the rainfalls is. All those things will play an important part. So, it is very difficult for me to comment on the overall growth or degrowth for financial year '27 as of now.
The first question is a slight extension of Gunjan's question. We have a probability of El Nino happening this year. My question is, are the reservoir levels enough to take us through despite a slower monsoon for the year?
Hi, Ajox. This is Neeraj again. So, as I had mentioned to Gunjan also, the reservoir levels are better. So, they will help substantially if El Nino actually comes into effect, because the reservoir levels are relatively better because of the last year's rain. But what impact they will have, we will actually get to know as we get into the end of Quarter 1 or when the forecast for rainfalls actually come in.
My question is on the FY27 outlook. As we consider positive first half, maybe around 15%-17% type of growth and current inventory being one of the lowest level, which should help for the next few months, but August onwards, this year's base effect will have impact, and as we understand the monsoon 2026 will be the deciding factor for second half, but in best case scenario, second half can be flattish type of number. So, full year number would be like a low single-digit growth, which will be much lower than the long-term average. What is your understanding on that, sir?
Hi, Mitul. Neeraj this side. So, I think your understanding is actually good. So, you have very rightly put in all the factors in terms of the growth in terms of the first six months and post that a decline on a high base. So, I tend to agree with you, but I am being a bit cautious on giving some kind of a figure. But what all figures you have actually to a certain extent quoted, seem very, very logical and to a certain extent, looking right at this point of time.
You all were to publish an updated mid-term business plan as per some previous calls. Any status updates on that?
So, right now I think the parent company is to first adopt the overall mid-term business plan. So, we expect they will do I think sometime maybe within this quarter or maybe in the coming meeting. So, I think we are not sure. So, maybe they were supposed to do it in February. So, maybe when the adoption happens at their end, then the India plan discussion will start. So, we expect maybe within a few months, maybe in the next quarter, we should be able to come up with the final plan.
My question is on market share. If you look at the market share fall, and then again, we started now recovering, but in overall, this scenario of last two, two and a half years, Kubota brand has been still struggling despite Maharashtra and South doing much stronger performance in last one, one and a half year. So, where do you see the exact challenges and what could be the strategy going forward for that?
So, you are right, Mitul, Neeraj this side. So, yes, Kubota initially had been struggling. And that struggle, to a certain extent has reduced with the introduction of certain new products in July and August. I think the market share in terms of Kubota will improve as certain new product introductions are also lined up in the Kubota brand over the next couple of quarters. So, we will see a gradual increase in market share in Kubota, I think from H2 onwards
On the export business. Can you talk about how do we see the scale up now? I know the new capacity plan has just been announced, but if you can share a bit more color on how do we think about the ramp up over the next two years, because the new plant is still going to take a couple of years given it is a Greenfield one?
Hi Gunjan, this is Bharat Madan. So, I think on export, like you said, so it is not totally dependent on the new plant because even the existing plant also we are making now products which are getting exported and then that probably will continue going forward too. The new Greenfield plant was more meant for shifting some of the key models from Kubota system in other countries to India. So, that will take some time, but the normal export which is happening to the other countries within Kubota network also that will continue. So, we do expect the momentum should continue in export, even though the base now is slightly becoming higher. So, you would not see the similar growth of 50%-60% what you see now, but still we expect it will continue to be double-digit growth in export numbers going forward even from the existing facility.
On the commodity side. There has generally been a lot of commodity headwind that we are seeing in the other segments. Can you help us understand where we stand in terms of tractors? Is pressure a big risk that we need to bear in mind? How is the commodity basket faring for tractors, and if there is any price intervention that is being taken?
So, till December though we had mostly zero impact and there is some favorable impact only on the commodity prices if you look at cumulative nine months of this fiscal. But, yes, this quarter there will be some pressure because some of the metals like copper and aluminum are getting expensive. So, we expect maybe some impact will be there. On tractor, we still do not expect it will be a significant impact. But on construction equipment, we have seen quite an impact this quarter. So, from January itself, I think we have seen the steel prices have gone up. So, which we have taken some price increase in the CE space, but I think the inflation was way more than what we had increased. So, there is some correction which we intend to do in the prices in the construction equipment space. On tractor, I think we will have to wait and watch and see what is the final outcome coming. It takes a lag of a quarter to really negotiate and finalize the prices with the supplier. It will also depend on how the competition actually responds to that. So, based on that, we will take a call. So, if there is a requirement and the industry also passes on the prices, then we will also take the similar move.
So, no price action taken so far, right?
No, it is not on our overall portfolio level.
On the mix, we are seeing that the less than 50-HP kind of picking up in a very small manner. But, if you look at the last three years, we have seen that kind of dipping relatively versus the others. Is there anything structurally happening in that space where we can see that inching up further?
So, Ajox, what has actually happened is post the reduction of GST on tractors, the liquidity with the farmer has actually increased. So, the farmers who were earlier looking at a 40-HP or a sub-40 HP tractor, are now going in for a 45-to-50-HP tractor. So, over the last three to four months, we have actually seen a shift towards 45-to-50 HP segment. So, that segment in the last four, five months has actually grown. It is primarily because of the additional liquidity with the farmer. So, he has an additional play to buy a higher HP tractor with the same amount of money.
On the construction equipment side. Our volume has increased sequentially. So, is it fair to assume that now the industry is recovering and though there may be some year-on-year declines, but sequentially, we should expect a better fourth quarter and going into Q1?
Hi, Vijay, Sanjeev this side. So, yes, sequentially, we have seen there is a growth or there is a lower dip in the industry quarter-on-quarter. And we believe that the way December month has gone by, we believe that it is a sign of a reversal. However, it is yet to be seen. We believe that last year Quarter 4 was low because BS-V products were introduced already. So, last year, Quarter 3 was bigger than Quarter 4. This year, Quarter 4 may be better than last year's Quarter 4. If that happens, maybe slightly positive, then it is a clear sign of a reversal of the industry trend. We are very hopeful. The announcements of the new projects from the governments are there. It is only now we are waiting for the actual fund flow to happen to the projects and real mobilization on-ground, which should be visible in the fourth quarter as well as in the first quarter of next year before monsoons. So, we are quite hopeful on that.
How is the industry exports on the construction equipment side looking after the new norms? Our norms are now comparable to the European norms. Are we seeing some traction there?
See, we do not have much of an exposure on the products which are exported to Europe or America. Largely, our customer base is confined to Africa, SAARC countries and Middle East. We see there is a traction, we see there is a growth, not primarily because of the emission norm changes, because most of these countries, they are still at BS-III level of products. So, we make BS-III products for these countries. But going forward, we also intend to introduce certain products which are going to go into larger markets, for example, Southeast Asia and some of the countries where BS-V certified products are being used. So, there are new platforms which we are introducing in the due course of time in the next few months, which will also give us a foothold in some of the countries where the new emission norms will take a larger share of business.
The price increase that happened in April last year, that has been fully bought in by the customers. So, we are not seeing now any weakness because of the price increase?
Yes, on construction equipment, the industry generally introduces price increase from 1st of January every year. And last year, 1st of January, there was a dual increase – one, because of the BS-V norms change, and the second because of the annual inflation passed on to the customers. So, it took a couple of quarters for price realization to happen. By Q3, we realized that the price has almost stabilized in most of the product categories. However, the big dampener is the slow growth. So, if the demand picks up, then it will be very easy for the price increases to stabilize quickly. But, when the demand is slow, of course, it takes longer time for price stabilization. That is what we have seen in our first two quarters in this year, it has been quite slow.
On the construction equipment side. As industry has done reasonably good on sequential basis YoY, of course, because of the base effect, there was an impact, but still, if you look at a longer period of last four, five years or even going forward, the industry is not picking up the way other segments like recently even construction or commercial vehicle also started doing very strong with 20%-30% growth. So, what are the major challenges or do you think anytime soon in next one year or two, we will see similar 20%-30% growth possible as base has been much lower over the last many years?
Yes, thank you, Mitul. Sanjeev this side. So, yes, the growth which we had seen in financial year '24 was dramatic and it was really encouraging. But, if you look at the five years period, I think the CAGR has always been 8%-9% and it is expected to grow at about 6%-7% till FY30. 20%-30% will be a big ask from the industry. But, I think the government is doing its part by allocating the CAPEX required for infrastructure development. Industry is also taking part in accommodating all the changes which are happening, especially on the emission norms and electrification of the products or whatever technological changes are expected, industry is also investing into it. If you look at the last 12-months, I think a lot of variables were in place. Say, for example, BS-V was to be introduced, there was a price increase because of BS-V and there was extended monsoon for four, five months, and across the country, there are various places the local elections were also playing a part. Now, considering that all these factors are over for next year, we believe that next year could start with a strong base, because these variables will not be there. And if the investments from the government continue, we believe that next year is going to be a turnaround year for construction equipment. Till FY30, it will continue to show the momentum of 6%-7% CAGR.
Any color on the served-segments within construction where we see very high growth and where the segment will still face some problem?
Yes, so within construction equipment, our served industry, we do four products; we are into cranes, mini excavators, backhoe loaders, and compactors. So, the sectors which are expected to do well, will be connected to the roads and railways. Those sectors will definitely have the highest traction. So, the sectors which we are not available or the sectors like which are related to the construction, say, for example, the concrete equipments or material processing equipments, industries will also do well. Within our product range, we believe that cranes will grow faster. And at the same time, mini excavator has already shown signs of growth in this year and it will continue to grow next year also. Backhoe loader and compactors will grow at a nominal rate of about 5%-6%. But cranes and mini excavators will grow much faster.
Board has consented the investment for the CAPEX for acquiring the land. And also, there is a mention about the indicative investment of 22.68 million. Just if you can run through what kind of timelines we are planning to go ahead for this CAPEX, sir.
So, Mumuksh, right now, the major, I think the intent was to finish the acquisition of land this year. So, which is why the investment which is approved by the board right now is only for the land acquisition. The investment which you have mentioned in the DPR or the project report which has been submitted to UP government is more like indicative. And that assumes certain capacities which will be built up right now for tractor and construction equipment plant in the Greenfield facility. So, that will depend on the demand scenario in the market, how the volumes will ramp up. Within the existing facility also, we can take the overall production level a bit higher by 10%-15% from the crane capacity perspective. So, it will really depend if the demand picks up strong and we expect the volume gain is happening. And then, obviously, we will be deep on the investment in construction activity in the facility. Right now, what we indicated to the government is to start this somewhere in 2029-30, the first commercial production. But, it can get pre-poned depending on the demand or it can get post-poned also depending on the requirements.
And even for some of the engine products also, spare parts also, would it also start around 2029?
So, engine for the existing product line, obviously, we will expand because the existing capacity in the existing Faridabad facility is there for engine, which we can ramp up to take care of the expanded facility for phase-I for the Greenfield. But as far as the Kubota engine line is concerned, that is not in this phase-I. So, that probably will happen in phase-II depending on again the volume which we do for Kubota products in India.
So, then, sir, for the JVs companies, it will take more time for the margins to further improve with the engine line coming up little later?
No. So, I think there is a plan to introduce the Indian platform under Kubota brand name. So, that will be using Indian engines only. So, the idea is to expand the margin by localizing those products. And they are working on the quality and other aspects, which can really be suitable for putting the Kubota brand on those products. So, that is the first priority. But there, the volumes will pick up and the margins can be at par with the Indian product line, so, which is what we are trying to do first. I think engine is something which right now is a very limited usage for Kubota, because we do only about 10,000 to 12,000 tractors which are using Kubota engine today. So, the rest of the products which will get introduced in future will be with the local platform. So, the numbers will not really justify putting additional investment to justify that sort of volume. Unless, like I said, the export volume really picks up and then we will have to use those engines. But that will be slightly later, not in phase-I.
And in terms of spare parts, how do you see that going on? Component export.
So, that is continuing. Even today, it is happening. So, that is I think the intent is to continue with that and ramp it up. So, we are adding more products now. So, I think next year, we will see the better number coming in from component export side also, because we are putting up a line for transmission for the harvesters in the existing facility and that has started production. So, from this quarter also, I think the numbers will start looking up. So, next year almost, we will see probably the good ramp up will happen on the component export.
And so finally, just on the construction equipment, we plan to do something 15,000 kind of capacity. Currently, we have 10,000. So, just a little thought on, over medium to long term, should we expect construction equipment to be more stronger growth area for the company as there is a more bigger plan to expand then?
No. So, the idea was the existing facility is not sufficient actually space-wise. So, we are actually using a lot of rented space in the existing facility to do this production today. So, the idea is to set up a Greenfield facility. We will probably look at shifting some of this facility in Faridabad to that place and we get this facility. So, the 15,000 will be the total cumulative capacity which will be there at that time. So, some of the facilities in Faridabad probably will shut down after this Greenfield gets commenced.
My question is on exports of tractors. Now, given that this EU FTA has been signed and probably it will come into effect in another year, year and a half, does it now open up EU market for us in a material way given existing foothold of Kubota in the European markets? What else we will need to do to enable this opportunity on the European export side?
See, Europe we are already exporting and today the duty on tractor in Europe is zero. So, there is not going to be any impact of any FTA which we sign with the EU, the bilateral agreement which is signed. So, that it does not have any significant impact on the tractor industry per se. This will impact some of the component exports probably for the auto component manufacturers from India. But on tractor, it is not going to be any significant impact. But yes, if the US deal gets signed off, so, today a lot of exports are happening from Kubota, Japan to US, and on Japan, I think there is a tariff of 15%, and against that, if India comes at 18%, so even with the blended rate of the metal tariff of 50%, the blended rate will be somewhere around 22%-23% which in Japan today is about 18%. So, it is a 4-5% delta differential which will come from India. But, I think it will make a lot more sense to produce in India at a lower cost and still look at exporting to US market. So, that is the potential scenario which in any case Kubota was working on. So, there is a plan to shift some of the products to India. So, I think that will happen for the Greenfield facility will be up and running. So, that is very much in the plan.
So, the current Kubota's requirement in Europe for small HP tractors is made to India or only partly made to India and partly to other geography?
So, we are supplying from India. So, they do have some of the manufacturing in Europe also. And they are also importing some of the stuff from Thailand and Japan. But what we are supplying from India essentially is being used to compete against many supplies from India and China in those markets because they cannot compete with their product portfolio with those supplies where the cost differential is very high. So, the Indian supplies are helping them in retaining market share in the European market. And today, I think we are looking at good numbers coming in, I think the order requirements, order book is quite good, I think from Europe today. And we are trying to level the capacities and add more product to the portfolio to continue supplying to them.
The reason why I ask is because the plant has been quite a bit of delay. So, just trying to get a sense of where we are today as a company with all the duties and everything? So, like you said, hopefully in the next three months, we should get an updated mid-term business plan.
Yes, that is right.
My question is, which all machines are covered under the CIE scheme and are the incentives realized based on capital subsidies?
Yes. So, if you are referring to the latest announcements in the budget about PLI, these are primarily export-substitution equipment. So, equipments which are currently are largely imported, say, for example, tunnel boring machines, we do not produce in India and it is being imported 100%. And similarly, very large cranes or crawler cranes, which are primarily imported. So, those are the segments which government wants to substitute with the local manufacturing. And that is where the PLI has been announced... although the fine print is yet to come, but the direction is wherever we are dependent on imports 100%, those sectors need to be localized. That is the direction and that does not apply to us, because we are not in those segments as of now.
What is your understanding? Where is the challenge in terms of competition launching new products or any price aggression or our cost structure is some issue, so, where do you see major problem, which was not the case earlier, in fact, Kubota was doing much better till last year, and in last one and a half, two years, sudden decline has come?
So, Mitul, major I think issue is on the product side, but the product lineup is not very strong there. So, we had only two models which we are producing for Kubota in India. So, the market potential there was very limited. Second thing, most of this stuff was getting imported. Even today, like in engine, we are still importing. So, the cost structure does not really justify. So, the kind of pricing which we have for Kubota products in the market is way higher than what competition is offering today locally. So, these two factors are the key factors which are affecting the overall volume, which is why we are very positive if we introduce the Indian platform under that brand name, which is what the other competitors, multinational competition has done, then your profitability will increase, you will be able to compete much better and the product portfolio will also expand. So, today, it is a very restricted portfolio catering to only about 40-50% of the addressable market. But once you take it to level of 70-80%, then you will have much larger opportunity. And then they can also start looking at expanding on a regional basis. Right now, they are very focused on southern and western market, but they are not really very strong in the northern center. So, the portfolio is there, then we can also expand to these markets. So, that is in the pipeline. So, that is why I say from this year, I think we will see the launches will start happening. Although the Indian platform will still take, I think, what year, year and a half to really come, we will get a complete range under that brand name.