Escorts plagued by massive inventory pile-up as sales dip

NEW DELHI, March 22: The Rs 3,500-crore Escorts Ltd faces a huge inventory pile-up owing to a sharp drop in retail tractor sales over the pa...

NEW DELHI, March 22: The Rs 3,500-crore Escorts Ltd faces a huge inventory pile-up owing to a sharp drop in retail tractor sales over the past three months.

Sources say Escorts is facing liquidity problems which have led to delays in payments to raw-material suppliers. "There has been a mismatch and cash flows have got squeezed owing to a big inventory, poor retail offtake and high debt," they said.

Sources said poor tractor sales are "not unusual for these non-seasonal months", but this year situation has been particularly bad. Company officials are, however, confident that things will start looking up come April.

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The weak season for tractor sales is from December to February-end, and there is usually an inventory pile-up in these months. "Right now, there is a finished inventory of 700 to 800 tractors which is, however, very normal for this time of the year", sources said. Company sources say it will start clearing up by March-end.

This year, the agricultural slackness has continued till Marchbecause of the unseasonal winter rains as a result of which sales have been affected.Bogged down by huge inventories, Escorts is not planning to slash production as it is hopeful that the stocks will clear soon.

Industry sources say companies such as Mahindra & Mahindra and TAFE are also facing the brunt of a slowdown in tractor sales. The poor retail sales have been attributed to excessive snow fall and crop failures in certain markets. According to industry estimates, there was a 30 per cent drop in Escorts’ sales in January this year as against the corresponding period the previous year. The company sold 2,700 tractors in January as against 3,865 units in the corresponding period in 1997, pulling the industry to negative growth.

Tractor sales dipped in January for the first time in over three years, down 3 per cent from the January 1997 sales of 18,420 units. Most tractor majors have reported a marginal growth in sales during January. The negative growth in January follows a sharp deceleration ingrowth during the third quarter of the current fiscal. Against a growth of 15 per cent during the first half, the industry recorded a growth of 10 per cent during the third quarter. Further, Escorts Ltd may not be able to meet its sales target of 51,000 units for this year. It is targeting annual sales of 55,000 units in 1998-99, with a production of 60,000 units at its Faridabad plant. The company posted a sale of 43,442 tractors (Escort and Farmtrac) in 1996-97, up 12.8 per cent from 38,519 in the previous year. Escorts has also begun work on its third tractor plant in Ranjangaon near Pune, which will add an initial capacity of 12,000 tractors, taking up the total output to 75,000 tractors per annum.