Escorts Kubota Limited (ESCORTS) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Escorts Limited Investor Conference Call to discuss outcome of today's Board meeting of Escorts Limited. [Operator Instructions] Please note that this conference is being recorded. I would now like to welcome the management. We have with us Mr. Nikhil Nanda, Chairman and Managing Director, Escorts Limited; Mr. Bharat Madan, Group Chief Financial Officer and Corporate Head, Escorts Limited; and Mr. Shenu Agarwal, Chief Executive Officer, Escorts Agri Machinery; and Investor Relations team at Escorts Limited. I now hand the conference over to Mr. Bharat Madan for his opening comments. Thank you, and over to you, Mr. Madan.

Thank you, Faizan. Good evening, everyone, and thank you for joining us for the briefing on the outcome of today's Board meeting of Escorts Limited. Today is a historic day, wherein Escorts and Kubota Corporation have reinforced their long-standing partnership with Kubota increasing stake in Escorts Limited. While we have put up the investor presentation on the stock exchange's website, following is a summary of the key transaction highlights. Preferential allotment, Escorts will issue and allot 93,63,726 equity shares through the preferential issue to Kubota at an issue price of INR 2,000 per share, amounting to INR 1,872.74 crores. This price represents a premium of 29.5% over the floor price as to SEBI regulations of INR 1,544.16 per share. Kubota's stake in Escorts will increase to 14.99% on expanded capital and precancellation of shares and shall become a joint promoter, along with the existing promoter of Escorts. Coming to open offer. The agreement which we signed with Kubota will trigger an open offer, and Kubota will make a mandatory open offer to the public shareholder of Escorts to acquire up to 26% of the share capital. Open offer will be at the same price as preferential issuance, that is a price of INR 2,000 per share. Kubota's stake in Escorts will increase to 44.8% post first capital induction and assuming full tendering in the open offer. With a view of making Escorts as the exclusive vehicle of business in India, Escorts and Kubota have decided to take necessary steps to evaluate and consider the feasibility of merger of Kubota Agriculture Machinery India Private Limited, the sales JV between Escorts and Kubota and Escorts Kubota India Private Limited, the manufacturing JV within Escorts and Kubota subject to necessary approvals. The Board of directors of Escorts have agreed to evaluate and consider the feasibility of cancellation of all the residual equity stake of Escorts Limited held by Escorts Benefit and Welfare Trust besides the pending capital induction, which is the first reduction in share capital for which the application was made last year, subject to getting necessary approvals. Existing promoters to remain fully invested, Nanda family and Promoter Group are not selling any shares of the company. Mr. Nikhil Nanda shall continue to be Chairman and Managing Director and lead the next phase of growth of Escorts with the current set of key managers personnel. Kubota intents to have Mr. Nikhil Nanda engaged in his individual capacity as a nonemployee with the proposed designation of Senior Managing Executive Officer and General Manager of value innovative form and industry machinery stallion operations of Kubota besides the proposal to induct him as a director on the Board of Kubota's European business holding company, Kubota Holding Europe BV in Netherlands. Mr. Nikhil Nanda's nonemployee involvement in the foregoing capacity will not interfere with his role as the CMD of Escorts. There will be no remuneration payable to him for these services. The name of the company is proposed to be changed to Escorts Kubota Limited subject to necessity approvals. Some of the benefits from the stronger partnership that we can envisage is that Escorts will be the exclusive vehicle for manufacture and sale of certain products in India and for sourcing of those products from India, which will include existing products as well as a new products, which will be jointly in future. Escorts will also house a major R&D and innovation center to offer cutting-edge products and new alternative technology, seamlessly integrating Kubota's global reach and world-class business processes and Escorts proven capabilities in frugal engineering and manufacturing. This partnership is committed to enhance customers' prosperity and accelerating mechanization with the most cost competitive technologies in India and across the globe. Now I request the moderator to open the floor for Q&A.

[Operator Instructions] The first question is from the line of Gunjan Prithyani from Bank of America.

Congratulations on this deal. Two basic questions from my side. Firstly, if you can just talk about how the Board and the management structure will evolve once the transaction is concluded? And then I'll get to the next question.

Thanks, Gunjan. So on the Board side, the existing Board obviously is continuing till the time the first transaction gets closed, which will be on the completion of the preferential issuance of shares, when Kubota reaches a threshold of 16.38% after the allotment and the reduction of the capital. So that is the time when the Board will be expanded to include 2 more nominees of Kubota. So there'll be 4 nominees from Kubota side and 4 nominees will be from the existing promotor's side and the balance of 8 independent directors will be there. So the Board will get expanded to 16 members.

Okay. Got it. And no change in management, at least for now is on the anvil, right?

Yes, there's no change in the management. So all the existing position will continue to lead the company.

Okay. My second question is basically now if I look after this transaction, we'll have closer to 4.5 or slightly over net cash on the balance sheet. If you can share some thoughts on this is fairly significant amount of cash, some thought process on how we intend to use this? Maybe you can give us more color on what the group together, both Kubota as well as Escorts are planning in terms of market share aspiration contractor or how we are looking to scale up the whole farm mechanization opportunity? If you can talk us more about the overall strategy with this -- with the amount of cash we have on the balance sheet?

So Gunjan, after the transaction is closed, so there's a proposal from Kubota to work jointly with the existing Escorts team -- management team, and they'll work on the midterm business plan. So it all for next 6, 7 years. And they will really put together there in terms of what are the requirements and what sort of expansion on the product category which we are looking into. So as you would have seen in the press releases and also in the media interviews with Kitao-san, who is the President of Kubota. So they are interested to expand the portfolio, our company has. So it's not just tractors, they also want to go into harvesters, combined construction equipment and also in the engine manufacturing space. So obviously, those are the areas where we don't know right now, what sort of capacity will be required, what sort of investment will be required. So those are the detailed working, I think which needs to be done. So after the transition gets closed, so that is the time when we'll work on the next 100 days' business plan, and we'll look at the next 6, 7 years, what sort of investment will be required and what sort of scenarios emerge in terms of the overall profitability and the business case for those investments. So maybe once those plants are ready, they're likely to maybe sometime in maybe June or July, which is the indication which we have been given. So maybe at that time, we get more clarity, and we will come back to you.

Is there any early thought on which Escorts will have to pay for the businesses where it is JV right now?

Sorry, I didn't get the question, Gunjan.

So we'll be merging the JV entities also, right, the marketing as well as the manufacturing, so...

Yes. So merger will happen and I think the time when it happens at that time will depend on the valuation for those JVs and the swap ratio which we get. So obviously, it will be marginal dilation which will happen. But as of now, we don't think it will be significant. But yes, that is something which will be maybe eventually happen.

The next question is from the line of Raghunandhan N. L. from Emkay Global.

Congratulations on fortification of partnership with Kubota. Sorry, sir, I missed that part. Can you talk about the usage of cash reserves of the company. Company had INR 30 billion cash as of March '21 and now another INR 19 billion cash is coming in?

Yes. So as mentioned, Raghu, so the company will be working on a progression of a business plan. So as you would have heard in the media interviews today with the President of Kubota, Mr. Kitao-san, so he was referring to the product portfolio expansion, which they intend to do in India. And this will go beyond tractors and to the implement space to harvesters, combined transplanters and construction equipment and also in the Indian manufacturing space. So obviously, at this point in time, we don't know what sort of investment outlay will be required. So those are the things which will get stressed out after the deal is closed, and then both teams will work together. And we expect by June, July, I think we should be ready with the mid-term business plan, which we'll be sharing it with all of you.

Understood, sir. And the collaboration refers to this exclusive vehicle for manufacture and sale of certain products in India and sourcing from India. Can you elaborate on that?

Yes. So the idea of this collaboration and strengthening of partners is also to have single vehicle for both the partners in India for utilization. Right now, like, we got 2 JVs which are running separately and Escorts is running separately. So obviously, at the end of the day, since they are 60-40 JV and then in this company, because Kubota only was about 9% right now, so obviously, there can be some conflict of interest which can come in, so the idea was to remove all those conflicts and have a cleaner structure than the profit ownership and also on the shareholdings. So at least the business, which is done in India, is all done through a single vehicle. So that is the intention when you say all the business will happen through this entity only. So within India as well as whatever sourcing happens from India to the global markets.

[Operator Instructions] The next question is from the line of Amyn Pirani from JPMorgan.

Can you hear me?

Yes. We can hear you.

Yes. My question was in the terms of the shareholder agreement have been there is a mention of a lock-in period of 5 years for both the promoters and Kubota. So just want to clarify 5 years lock-in is contingent on which part of the transaction? Is it a preferential allotment, is it the open offer or is it a certain stake that Kubota has to go after with the sale agreement comes into force, if you can just explain that?

Yes. So once the shareholder agreement becomes effective, it will be after Kubota reaches the 16.4% stake, so at that time, the entire holding of the existing promoters as well as the Kubota will come under the lock-in for next 5 years as for this agreement provisions.

Okay. Okay. So it is not dependent on the success of the open offer? Is it just a be initial preferential allotment?

Yes, that's right.

The next question is from the line of Mitul Shah from Reliance Securities.

Congratulations. Sir, can you give us -- throw some more light on synergy benefit related to construction equipment?

So Mitul, on the construction equipment, as you know, Kubota is the global leader in the mini escavator space. So their single product line has about $3 billion turnover. And they had shown interest actually in the beginning also that they wanted to use our facility and also our earthmoving equipment capability. And as you know, they're also the largest Indian manufactures and they supply to the industrial equipment division. So engine to the construction equipment sector as well as in the farm equipment space. So they are quite keen and interested. So that's the construction equipment. This time is a part of the overall business portfolio. Unlike in the last time when they are actually restricted it to only earthmoving segment. So this time, they expanded that portfolio. So this entire business of construction equipment will also remain under under the centralization right now. So I think the intent is to not only use it for expanding the domestic market, but also use the facility and help it in exporting to the other countries to the network. So they already have a distribution network now in the sales JV. So earlier, they were using the distribution network by third party in India, but now they've acquired that business in KAI which is a sales JV, and they are doing the distribution right now in that entity. So was the entity merger and in a single vehicle, then this entire construction equipment segment business also will get combined.

And just last thing, what is the motive of promoter for this deal because we are not understanding the promoter is not tendering any sales, neither it's getting any money? And the reason is not coming out at why it's allowing any other entity like Kubota to become a major shareholder with more than 50% holding. So then what benefit goes to Nanda family? Or is there any future probability of over a period, they may offload or anything like that?

So sir, this is Nikhil Nanda. So it's a good question from your side. All I can say is that to me and my family are totally committed to the long-term value buildup of Escorts, and therefore, I was -- there have been a lot of rumors in the market about the family selling. I just want to put those rumors to rest that there is no intention whatsoever for family to sell any shares. We've not sold any share right now and neither do we intend to in the foreseeable future. So that's one. Second, the Kubota and the Escorts relationship has been built since 2016 with a lot of trust that I have been able to -- along with my team, been able to build with the leadership team of Kubota. The plans that Bharat talked about, be it in terms of the medium-term business plan, which we want to jointly achieve for FY '25 and beyond, basis the trust of bringing the best of Escorts and Kubota bringing its best to India and succeeding jointly. So it's not about tendering or we aligning anyone to come in. It's about the 2 partners who have set forth to build a powerful future to serve the society and the farming community, and that is the division and the gold with which we have announced what we have today.

Really thankful from all the investors' point of that this is really very good strategic decision you people have taken for the benefit of investors and giving confidence to all of us.

Thank you for your time. Thank you.

The next question is from the line of Satyam Thakur from Crédit Suisse.

Congratulations on the partnership. So sir, my if you could share some thoughts on how the brands and the distribution will evolve here? So the 3 brands in the Kubota and Farmtrac and Powertrac, will all 3 continue? What we do the positioning of the 3 brands? How will that be differentiated going ahead? And distribution also, will Kubota also be through our Escorts dealerships or will that unit separate and how do you see that evolving?

Yes. This is Shenu Agarwal. Thank you for the question. As you know, Escorts has built our 2 main brands, Powertrac and Farmtrac over the last several decades, and they have some very unique strength in the market or in the eyes of the customer. Now we will have in the same company, a third brand, Kubota, which is also very, very powerful brand. All the 3 brands we think are very, very unique and very distinctive and therefore we will try to leverage all the 3 brands distinctively. Of course, our strategy would also see in which market we make something a lead brand and something a supportive brand that discussion is going to continue over the next few months, as Bharat has explained. But definitely, the intention is to leverage all the 3 brands because of their distinctive and unique strengths.

Okay. Sir, and on the distribution front, will -- has that been decided [indiscernible] will also be distributed through Escorts dealerships? And secondly, in the Escorts, we had started separating the distribution of Powertrac and Farmtrac, so will that continue?

On distribution side, it really depends on the brand strategy. Generally, the idea is to leverage all the 3 brands' unique strengths. But as I said, on a regional basis, we might decide for some brands to take a lead reposition and something else to take a supportive provision, depending on the dynamics of market in that region. So distribution will follow the branding strategy. As far as Powertrac and Farmtrac is concerned, we will continue to separate the distribution for these 2 brands as this is a strategic decision we took 3 to 4 years ago about the half of the country or more than that, we have already separated it out, and we will continue to do that in the rest of the country.

And if you could share your thought on any -- I think if you were to say that do you see that in terms of current positioning of the 3 brands, do you see anything which is complementary in nature that parts -- like what parts is Kubota better at add and which parts of the market in terms of [indiscernible] ahead?

Sorry, I -- you're -- I couldn't gather what you are asking your voice is little fumbling. So can you repeat maybe?

[Operator Instructions]

Yes. Is it better?

Yes.

Yes. So sir, I was asking that in terms of the current positioning of the Kubota product, if you could just share that which part of the applications is that better kind of suited for and a better product for in terms of crop types and in terms of soil types?

Okay. Yes, so in that sense, there are like big complementaries that we have with Kubota product line because the Kubota products line in its current shape and form that is available in India is very, very well suited for the wetland markets, right? So they have actually coming from Japan and having a lot of experience to develop products for the wetland or paddy-type of crops. They have huge expertise in developing tractors for that. And that is why Kubota, when started distributing tractors in India, they picked those markets, right? This is not to mean that in future, they will have products only restricted to this type of a market or this type of application. Yes, but that is their strength right now.

The next question is from the line of Jinesh Gandhi from Motilal Oswal Financial Services.

Congrats on this deal. Just continuing on the Kubota brand tractors in India, so how it will change post this transaction? I believe Kubota brand tractors are in the market before this. So how does it change? Would it be sold through Escorts network or will continue to be on the Kubota network? That's my first question.

Okay, Jinesh. So as I explained to Satyam, we want to leverage the strength of all the 3 brands generally speaking, and therefore, the distribution will follow the brand strategy. However, in some regions, not just in India, but also globally, we would see and decide which brand out of the 3 would take a lead position and which would take a supportive position depending on the market dynamics and the unique strengths of the brand. So of course, that is the general philosophy and Bharat explained earlier, in the next 6 to 7 months, we are going make detailed the midterm plans, which will also include plans on branding and distribution. And then we will -- we can share those with you. But generally speaking, 3 brands are distinctive in our view, and they will play a distinctive role in the market.

Right. And distribution for each of these brands will remain separate, right, or there are plans to merge that?

Distribution will remain separate and it will follow the branding strategy like I explained.

Okay. Okay. Got it. And secondly, on the board seats, which you talked about additional to board seats. Would it eventually also mean that you will -- Kubota will also get any executive positions in the company or that is not part of the agreement?

Yes, so as I mentioned, I think, in the beginning, so once the preferential allotment is done and Kubota reaches this threshold and the shareholder agreement becomes effective, then they will induct 2 more directors on the Board. So right now, we have 4 nominees from the existing promoters and 2 from Kubota and the 6 independent directors. So after they reached the threshold of 16.38%, then they will have 2 more nominees coming on the Board. So we'll have equal Board members from both the partners and there'll be independent directors who will be 50% of the capacity as for the norm. So that would 16-member Board will be there after the presidential issue is completed.

Sorry, what I meant was on the executive side, would it require -- would they get any executive position as well?

So right now, obviously, if the existing management team will continue. So all the key managerial position which are there, they'll all continue to operate. So that is the discussion and assurance we have from them. So going forward, obviously, in the long run, we'll see how the happens when we also have the merger of these companies and then we look at a right structure.

Got it. Got it. And 2 clarifications. One is the 5-year lock-in is also for the Nanda family as well or just for Kubota?

Sorry, can you repeat your question?

The 5-year lock-in which is there for the ownership, is that...

Both the promoters.

Both the promoters.

So after the agreement became effective, both the promoters will have this lock-in. So the which we've been getting that the Nanda family is selling out, so in order just put to rest, there is a lock-in, so nobody can sell, neither Kubota can sell or the Nanda family can sell. So we'll be lock-in for that period.

Sure, sure. And secondly, post the second or elimination of entire treasury's shares, stake of Kubota will be 62.5%, right?

Yes. Eventually, they will go to that position, assuming including the offer of 26% is achieved.

[Operator Instructions] The next question is from the line of Joseph George from IIFL.

Congratulation on the transaction. I had follow-up questions. One is on [Technical Difficulty]

[Operator Instructions]

Can you hear me now? Is it better?

Yes, sir.

Okay. So my question is, can you please confirm whether the trust will tender shares in the open offer or not? Or is that a no just promoters?

No, so trust is declared as a part of the promoter group, so as per SEBI regulations. So the Promoter Group is not allowed to participate in the tender offer. So none of the promoters will participant with tender offer. So this is only meant for nonpromoter category.

Sure. And the second thing that had was, is there any plan to give out a onetime dividend or something because this will end up with close to INR 5,000 crores? I know you've answered questions on that with respect to new products, et cetera. But that number is a significant number, it's like almost [ INR 450 ] per share. So is there a plan to declare a onetime dividend, et cetera, when the cash comes in?

So I think as of now, obviously, no one has spent the capital to give back to the shareholders as a dividend. So I think the idea is to put it back to the business for growth, and that is what I mentioned. So we'll be putting together a business plan. The idea is to grow the business and also expand into new categories. So we don't know right now what sort of investment will be required for those categories. I think once the plans are ready, I think we'll have better clarity in terms of what sort of cash requirements will come in, in the coming years, then we can take this call.

Perfect. The last question that is Kubota has a lot of products in the farm mechanization space. So is there a big plan that you're thinking of -- in India, of course, levels are extremely low, but is there a lot of potential for introducing those products in the Indian market and bringing the -- or bringing that as a next leg of growth for Escorts?

Yes, yes. So as Bharat had explained earlier, I mean, we are not just looking at tractors, but we are looking at the complete farm mechanization solution space, right? So there would be -- right now, a few things are clear to us, which is like we do want to participate and combine harvestors, rice transplanters, we do want to participate in the broader implement space. Also, we do want to participate in the engine space, yes? But more things will emerge as this partnership continues and goes along.

The next question is from the line of Vikram Ramalingam from Maybank Kim Eng.

Congratulations on the big news. My question is on the export initiatives of Escorts. So I also read that the related party transaction can go up to INR 4,500 crores in the fifth year and -- can you expand a little bit more on that and what -- how this whole transaction will help in achieving higher export sales for Escorts? And how will you now manage cannibalization between the Kubota Group and Escorts with respect to exports?

So 1 of the intent of this collaboration is to have a single exclusive vehicle in India for both the partners. So as you know, we already have got 2 JVs, which are running now, and it's significant in terms of size. So like KAI, which is almost INR 2,000 crores company right now. And also which is manufacturing JV is almost INR 1,000 crores or going to touch about INR 1,000 crores in terms of top line. So both are significant JVs, and there are already transactions happening with the related party transaction between Kubota and the JVs. So once we intend to merge these JVs into this company, obviously, this is a listed entity and where you've got a threshold ceiling for getting those related transaction approved from the shareholders. So keeping into view the transaction which are already being done in those JVs with the related party and also the future growth plan which we have in mind for this company, including Escorts, so we think this is the ceiling, which will be required to we are actually going to seek this approval from shareholders to have a related party transaction approved. And obviously, this will come as a part of the plan. So this INR 4,500 crores is a ceiling, which will be there for both purchase and sale transition, which is a combined transaction. So it will include the existing transaction as well as the one which we proposed to do in the future, which will come out more clearly in the business plan.

And just a follow-up. How does it -- how does this deal now help with exports on an independent level as if there are new countries you would like to tap or regions you would like to tap? Can you explain that a little?

Yes. See, there are, I mean, several opportunities that will open up now because, as you know, Kubota is a global player with a very established brand in several continents and markets. And therefore, all these markets or many of these markets would need India-like products, right, or the products that Escorts is an expert on, right? So that channel will definitely open up with much more intensity now. The other also lever would be that India would become like we explained, would become a global R&D hub for worldwide Kubota and might have the biggest R&D center outside Japan, which will again use the Indian expertise or Escorts expertise to develop more products, which we can now export through Escorts channel or also through Kubota global channels, right? So all those opportunities will now open up with this. And therefore, we are very optimistic on the export front as well.

The next question is from the line of from Wealth Management.

My question was on the shares that we hold in the employee trust. So currently, as you mentioned that we are looking to deduct 9% at -- cancel 9% of the stake held in the employee trust. What happens to the balance 16% which is held in the employee trust? Also, in terms of voting rights, do these shares have voting rights, which are entitled to which promoter now? Is it the Nanda family or the Kubota company?

So indirectly you've answered to the position. So the 9% is the capital reduction, which has already been filed last year. So when we did the first presidential allotment to Kubota last year in July, so we'd also passed a resolution to cancel those shares, equal number of shares. And for that approval from NSE, BSE has been taken, and we already filed a NCLT. In fact, last month also had the NCLT [indiscernible] and we expect this reduction will get materialized perspective very soon, maybe a few days, a few weeks' time. Now as for the balance shares are concerned, we already announced the Board will evaluate and look at the feasibility of canceling those shares to whatever the 15%, 15.5% stock is left now. And eventually, those will [indiscernible] So end of the day, both will likely get canceled.

Okay. Got it. Sir, and in terms of Kubota's sourcing or this thing, I understand you mentioned that we'll finalize some plans in June-July. But broadly, can you talk about the kind of opportunity? Because as we are talking about INR 5,000 crores coming into the company, what kind of CapEx plans do you envisage? Because globally, Kubota is doing somewhere around INR 1,60,000 crores of sales. So do they have something in mind where 5% of it, are they looking to outsource from India? Or all this will come and finalize -- get finalized in June-July?

Yes. I think this is one of the options. So as we mentioned, because we have been discussing with them. So since the sourcing -- global sourcing is quite high, so when you talk about a $15 billion company, when you take 60%, 70% of the material cost, options or opportunities for sourcing from India, which is a low-cost country is huge but as a potential we need to jointly, because right now like you said since they were only holding 9%, obviously, those are the items, which they will not have transferred to the company. But now when you're looking at you're talking about a single exclusive vehicle, which will be the only vehicle for working in India, then all these have already opened up for us, whether it's exports or sourcing of components from India or products from India including setting up an R&D center. So I think a lot more positive, which will likely come into play beside your expansion of our product portfolio.

Got it. Okay. And congratulations on the deal.

Thank you.

[Operator Instructions] The next question is from the line of Ashish Jha from Macquarie.

Sir, my question was, given you said that Kubota has expertise on wetland power tractors and all, does it kind of make us more ready to gain market share in South and West, where this was one of the issues in our portfolio?

Yes, definitely. So the whole idea was to strengthen each other with our complementary capabilities. We make a certain kind of tractors and Kubota has expertise in certain other kind of tractors. So when we start working together now under 1 company concept, there would be a lot of opportunities to see how we can leverage on each other's competencies. So yes, I mean, wet land, of course, we will get a major boost. This is the 1 that we were slightly lacking on in terms of product portfolio.

Sir, my question was more in context of, are there multiple products which Kubota has in their global portfolio, but they have never explored Indian markets for those products? And basically, can it really faster the process materially or do you still think it will be a gradual market share increase in at least some product availability point of view?

Yes. From a product availability perspective, as you can imagine, Kubota is a leading player and a leading brand in most of the continents. And therefore, you can imagine that, I mean, the product range that they have in India is nothing as compared to the product range they sell globally, right? So they are a kind of a full tractor and agri solution equipment manufacturer. They have products from very, very small lawn and garden tractors to very high horsepower tractors, right? So all that product portfolio now will be available depending on what India needs and what this 1 company needs, Escorts Kubota needs. But yes, we will have access to all that technology. Now we will have discussions as to what is required and therefore, then we will get that to the Indian market.

Right, right. Sir, secondly, I know you spoke about business plan coming out in June-July, but some of the segments that you spoke about, like implementers and harvesters and all, can you at least quantify what kind of opportunities there in terms of the market size and all of these as it stands today?

Yes. You know the implement is not a big market right now, especially in the organized sector, but we all talk about this, that that implements market has a huge, huge potential in India. Now if you look at globally, implement market size overall is twice the market size of tractors globally. But in India, it is like less than 5%, actually much less than 5% right now. So there's a huge upside for companies like us to increase our penetration and participation in this market and to grow this market in India. So coming together with Kubota, which has a large presence in global implements market, harvesters, transplanters, et cetera. So that would be a definite benefit for us to expand our presence in implements.

The next question is from the line of Chirag Jain from DAM Capital.

Congratulations on the transition. Sir, I just wanted to check now with INR 5,000 crore of that we have, would inorganic, let's say, growth opportunity or acquisition is something that we would actively pursue now in, let's say, either in the tractor space or probably in the implement space in which we plan to, let's say, expand?

So Chirag, all those options are open. Obviously, tractors, I don't think there's a space where more consolidation is possible right now in India. But yes, on implement space is something the possibility. So now since we have availability of a lot of technical expertise from the other partner, so it opens a lot of opportunities for us too, which was not there earlier. So we need to sit with them, discuss with them. So what are the complementary capabilities with both partners have and where the gaps are. So obviously, where there are gaps, there will be will be explored. But there, we can get the strength from the then probably we don't need to look at those options now in India.

The next question is from the line of Shashank Kanodia from ICICI Securities.

Sir, the kind of synergy benefits that we are envisaging regarding the incremental in global sourcing, so these are first leg of transaction, right, so 18 months back, but hardly any progress has been made, so apart from COVID, what really held us back in really progressing upon that partnership?

No, no, I mean, we don't think the idea was -- I mean, there was no progress. There were a lot of things on There were a lot of discussions that were going on. And with this announcement that we have made, a lot of conflicts of interest have been removed because the concept is now working in 1 company together, right? So a lot of these things, even what you are saying were a little bit slow would get accelerated now. So as Bharat has explained, both the teams would sit together in the next 6, 7 months, we will draw out those plans, and then we can diverge more information on those.

And sir, secondly, what happens to something like 17,000-odd units of tractors which Kubota sells. So these will be immediately transferred and manufactured at Escorts Kubota Limited and our combined market share now will become the third largest at 15%,13%-plus?

Yes. So when everything merges together, of course, the market share will also much together. As you know, Kubota tractors are being imported from various other locations outside India as well as manufactured -- Some of them are manufactured in the JV that we have with them, the manufacturing JV. So once a manufacturing JV mergers, of course, the production will continue in the plant in the JV plant, but the company itself or the entity itself will get merged.

Right. But sir, the imported portion will shift to the domestic operations, right, then this eventually should happen.

It will all be part of 1 company after the merger.

The next question is from the line of Shah from Edelweiss.

Sir, I had a very basic question. I'm sorry if you have already answered this. But I want to understand what does Nanda family get in this transaction? So our shareholding is going down from 37% to 12%. And what benefit did Nanda family see in Escorts Kubota versus what we were seeing earlier?

Well, first of all, I think this is a misnomer that the shareholding was 37% because 45% shareholding at least is lying in the trust for which the beneficiary is the company. So if you look at the consolidated financials, we do net of that capital. So essentially, it was only 11%, 12% capital which is family. So in terms of what he is getting? he's creating an institution by bringing a strategic partner on board. So obviously, it's a friendly deal, which has been done looking at the possibilities of collaboration and what -- how we can grow the business together in India as well as globally. So I'm sure like all shareholder, he is also a shareholder, and he also will see his wealth growing the way the other shareholders are looking at this transition and the company is likely to do well with all the synergies, which are possible now between 2 partners.

Okay. And any idea on all the other JVs that we have? Will they continue the way they were -- I mean we were working on it? Or the plan would be again within 6 months?

Sorry, which JV?

So JV, for example, that you started...

So all the other JVs will continue. So we have 2 more JVs like Tadano for construction and the another one in the tractor space for a smaller tractor which is the we call [indiscernible] mix of a smaller tractors. So both JVs will continue.

The next question is from the line of Kishan Gupta from CD Equisearch.

Sir, essentially, I want to understand like for tractor, you have ex Kubota 10% market share. So how come -- what would -- how that will shape up post this Kubota participation?

I'm not sure if I got your question right, but still, I'll try to respond. So yes, so we have about 11% market share and Kubota has roughly about 2%, 2.5% market share. So once the whole -- once all the entities gets merged into Escorts Kubota Limited the proposed entity, then of course, that market share will also get consolidated. If the question is about the future growth of market share, of course, we have spoken about it a lot that all the three brands have some unique strengths. There is a lot of technology that is available in the Kubota ecosystem that will be available for India. In any case, we are going to invest in our local R&D to make it a global R&D to develop new products for India jointly and for even outside India. And therefore, all that will add up to our strength in India and globally.

Sir, essentially 13%, you said 11% plus 2%. So if you -- can you quantify how can, where it can move in the next 5 years, domestic?

I think we have talked about this earlier also that our aspiration is to go beyond 20%, 20% to 24% in combination of the 3 brands, right? Now in terms of timeline, of course, we are working out retail brands now in the next 6 to 7 months. So we will get back to you, but that is the level of aspiration.

And you talked about this around 2% stake this market share for Kubota. So where they have done well in India, which markets essentially?

So they have a graduated strategy in entering India for the last few years. And of course, they are going market by market. So don't read like 2.5% as the overall India market share because they are not present in more than 50% of the market. in India right now. But right now, they are focused on mainly wet land markets because that is what their current strength is, yes. But in those markets, they have a significantly higher market share than 2.5% at a country level they are at 2% to 2.5% right now.

And do you think that you can ramp up further market share in wetlands post this deal?

For sure, that would be our vision and aspiration.

The next question is from the line of Pranav Tendulkar from Rare Enterprises.

Sir, just 1 query. So after all the shares I suppose the next stage of the Welfare Trust shares are also extinguished. What will be the final panel last shareholding, so in terms of percentages? So Nanda family, then Kubota and then public, these 3 categories.

So after the last capital reduction for the balance plus shares and assuming Kubota goes through this complete open offer and they get 26% shares and the preferential allotment, eventually, they will end up at about 53-odd percent shares and Nanda family will be at about 14%. This is premerger of the JVs. And merger also maybe some dilution will happen, and they'll get some extra share, but that will depend on the ratio and the valuation which happens at that time. So together, there will be roughly about 68%, 69%, so balance will be with public.

Perfect. So 33% will be the public share holding?

Yes, about 30% will be public.

The next question is from the line of Vimal from Union Mutual Fund.

Sir, while your comment on the tractor market, the Kubota has about 2% to 2.5% market share in India. That gets consolidated, which is very good news. Just wanted to understand that we have the similar understanding or structure for the other businesses that Kubota has in India expect, which is construction equipment and farm equipment?

Yes, yes. So construction equipment business is also within the KAI, which is Kubota Agriculture India, the company that teen agriculture machineries. So once KAI gets merged into the new company EKL, Escorts Kubota Limited, and that business will also get merged.

Right. The construction equipment and the farm right?

Right, right.

Okay. Okay. And sir, I think you mentioned -- in one of the questions, you mentioned the potential for Kubota to source us -- to source the tractors from India. I couldn't get your answer right, but if you could just help me with that number again, what is the potential that we are looking at in terms of Kubota's global sourcing? What -- I think you mentioned on number. Could you just repeat that statement for me, please?

No, no. Actually, we didn't give you a number. We were just giving a ballpark kind of a potential estimate, not a number really because the number we still have to work out working with Kubota team. But I think Bharat was only trying to say that their top line right now, global pipeline is in excess of INR 150,000 crore. And therefore, their material cost even assuming at 75%, so that is like a large bucket that Escorts can tap into, right? Of course, I mean, what will come to Escorts is a matter of discussion and matter of decision, which will happen over the next 6 to 7 months.

So when we talk about what will come from Escorts and when you talk about materials -- cost of materials for Kubota, we are talking of fully built tractors to be probably exported from our manufacturing facilities, right? So Kubota will actually leverage [Technical Difficulty]

Yes, we are talking about both. We are talking about sourcing of components, subassemblies and aggregates as well as some tractors for their global network.

Okay. So this will include components as well, which you're not doing right now?

That is right.

And this will be agri components only, agri tractor components, et cetera?

Yes, whatever components that we specialized in in sourcing, right, what we use for our products, of course, those would be the -- those would be the potential component that we can -- or Kubota can buy back.

The next question is from the line of Ronak Sarda from Systematix Shares.

Congratulations on the deal. A question again on the related party transaction for which we'll be taking the shareholder approval. So firstly, I mean, can you help us understand what is the kind of transactions that are happening right now? And will this just continue in the new entity, EKL or are we planning to do something beyond the current transactions? And hence, we need an approval? Sorry, if you can just explain that again?

So it will be a mix of both the existing transaction which are happening. So there are 2 set of transactions. One, the transaction which are happening with Kubota and the JV, because there, we are the related party. With a Escorts, they are not yet related party because they are not the promoters right now. But now after this deal and the shareholder agreement becomes effective, they will become promoter, which means they will become related parties. So any transition which we are doing overall, not covered under related party will also get covered under related party. So what the export potential we're talking about from Escorts, which will happen to the global network will all be part of Escorts right now. So in addition to the existing one they are doing, the proposed one also, which will happen from our company will also be part of this transaction.

Right. So this is more in terms of exports and not importing fully built tractors from any of the Kubota entity into India? Is that understanding...

No, it can happen, like they're already doing right now for tractors which are not being produced in India from their entities, which is coming to the JVs now. Obviously, we'll not start producing all those tractors immediately in India. So it will take time decide to localize those tractors depending on the synergies and the volume which we can get from them, till that time also it'll continue to be imported. And all those imports will shift to Escorts Kubota Limited once the JV merge into this entity.

Got it. Got it. Okay. And the second question, obviously, the relationship is 5 years old, and we had a preferential some time back, and we are doing this new preferential allotment as well. So it has -- I mean, the decision has evolved very well. So can you highlight, I mean, some of the points which Escorts believe can help them increase their market share potentially or what are the tangible benefits or the intangible benefits which you [indiscernible] from the deal, I mean, assuming everything now becomes a one entity?

So as I talked about like this will be the exclusive vehicle for both the partners to do business in India. So obviously there are potential for -- first, there a potential for improving the market share here by expanding our product portfolio, complementing the strength of the channel partners for both the companies, which today are operating separately and also the opportunity for sourcing from India for the global requirements. So it'll be export possibility, both for finished products, for components, for as well as expanded product category which they introduced now into this company. We are planning to have a major R&D center, which we'll be set up -- the global R&D center which will be set up in India, which will be part of this entity now which will be an innovation center and the new product development, which will happen. A lot of outsourcing of the new product development exercise is they do globally can also happen with the center, the way we've seen it happening in many other companies. So obviously, these are the scenarios which right now is difficult to quantify, but this is something what has been set the expectation for. So I'm sure I think when we start putting it together on a paper, and then we'll get more clarity in terms of over what time frame and what sort of synergies can happen further, and what really translate into of the financial terms.

Sure. Sure. And the final question, I mean, once Kubota has, let's say, more than once we open up or goes through and they have let's say, more than 40% stake, will there be a relook at the different businesses Escorts is in today? And will there be a core, noncore assets? Or do we plan to continue with all the businesses we have right now effectively the railways business and the other JVs we have?

Yes. So obviously, railway is 1 business where Kubota does not have an interest globally as of now. So the construction equipment and the agri business is definitely the core right now. So on railway, obviously, we'll think. As of now, the business will continue as part of the entity. But going forward, we'll have to explore options in terms of what need to be done with that, whether we put that into a subsidiary or look for a separate partner to help that business also to grow because the business also holds a lot of potential right now. So look at the right partner to really help that business to grow the way we are looking at the agri machinery business with Kubota.

The next question is from the line of Dhruv Saraf from Group.

This is from So I have 2 questions. One question is regarding the shareholding. So post the preference allotment now, Kubota will reach 16.5%, and then you will approach the regulators to allow you to cancel these shares, that is the trust shares. Post cancellation -- so first clarity I need, whether you will approach to cancel the entire 25% stake held by the trust today? If that is the case, the stake of Kubota then moved to 21% or 22%, okay? Then an open offer happens of 26%. So 22% plus 26%, my math tells me it is 48%, okay? So you are saying that post that, their stake will be 53.5%. Obviously, it's an expanded equity. So there will be calculations -- effective open offer is worth for 26%, but it is for some 33%, 34%. Is my understanding correct?

No. It is incorrect. So let me first clarify that to you. See the Kubota was allotted 9.1% preference capital last year. And at that time, we'd also decided to cancel the equal number of shares from the trust for which the application has already been filed with NCLT and is pending there. And we're expecting that approval will come any time now. So that is the first part of it. So out of 25%, 9.1% is already addressed. When we're talking about 16.4% for Kubota, that is after assuming that 9.1% capital election will take into place by the time we grow this preferential allotment. So the initial percentage of shareholding of cohort after preferential allotment and before capital reduction will be 15% of the expanded capital. Post first cap reduction, they will move to 16.38%. After that, assuming they get an open offer of 26%, which is on an expanded capital base and after capital reduction of first phase, the expanded capital base, the open offer size will be 28-point-roughly-8-percent or something or 28.4%. So they will move to 44.8%. And then there will be a second phase of capital reduction, which is for the balance 15-odd percent, then they will move up to eventually 53-odd percent.

Okay. So effectively, the offer is not for 26%, but for 28%?

26% of the expanded capital.

Correct. So on existing it is 28%...

[indiscernible] so that becomes 28.4%.

Okay. Now the second tranche of my question is that after this, there will be dilution for rest of the shareholders when a merger happens, correct?

Yes, but very minor. They are not very big in terms of their size. So I think it depends on the [indiscernible] and the valuation, but will be minor.

But sir, when the treasury shares get canceled, the extent of treasury shares getting canceled out is more than what is being allotted to Kubota. So do I assume that the cancellation is going to be shareholder accretive and the merger is going to be shareholder dilutive? And hence, you are saying it will not be too dilutive for shareholders?

No, no. I think you have totally misunderstood the transaction. The cancellation is 15% of the capital. Merger may give a dilution of 1% or 2%. So obviously, it's accretive to the shareholders. I don't know how you're doing the maths.

Okay. So -- but trust today holds 25%. What happens to balance then? That gets canceled in the second tranche?

See, 10% -- 9% is already under cancellation, which should be effective any time now. It's only wait for the NCLT order to be received. And then the balance will be only 15.5%, which after this preferential issue will probably get reduced to about 14.5%. And that cancelation will happen later after the open offer.

The next question is from the line of Amit from Rare Enterprises.

Yes. I don't have a question just Mr. Nanda, Shenu, Bharat like many congratulations to all of you for pulling up such a fabulous deal and wish you all the success in the medium and the long term. Congratulations for the deal.

Thank you, sir, for calling. Really is appreciated. Thank you, sir.

The next question is from the line of Sameer Deshpande from Fair Deal Investments.

Congratulations to you, Mr. Nikhil Nanda and all the team of Escorts for undertaking such a good deal with the world leader in our future business growth potential will be quite good. So it is really a rare thing. The treasury stock operation which had happened few years back was at that time questioned by a lot of people that the promoters of the company are taking backdoor steps to increase their stake. But now I think it has been demonstrated that the promoter has acted in the interest of the company and the minority shareholders at large. So Mr. Nikhil Nanda, you'll need to be congratulated for this.

Thank you, sir. It's my responsibility to do what is right, and I believe what we have approved and basically consultation, delebration of the Board of Directors that the structure is clean, it meets all the governance tick mark and also strategically, we bring in a partner that gives a very powerful roadmap of growth for this company for the future, be it for domestic market and for the global markets. So we are very thankful to the support of our shareholders, and you have my commitment, we will do what it takes to be very, very clear on our growth and expectations on the ROI and on a profitable and a market share growth. So thank you.

Sure, sure. And all the very best from all of us. I had 1 question to Mr. Madan this equity now the new preference allotment, equity will get temporarily diluted and later, it will be canceled. So actually, I would like to know earlier, our treasury stock was about 3.37 crore shares out of the total 12.25 crore shares of the equity capital, which was around 27.5%. Out of that, we placed that 10% and later now, it will be canceled, et cetera. So the net equity would have been, if you cancel the treasury stock, would have been about 87 crores. So now after all these transactions are completed, what will be the net equity of the company? Would it be 122.6 crores, which is the current equity or it will be I think adjusted because of the cancellation of the treasury stock?

I'll further go down because there will be further cancellations, which will happen. So I think if you look at our consolidated financials, we already reduced this treasury stock and your net capital is much lower. So if you remove that capital from the expanded capital of 134 crores with the 13.48 crores shares and remove 3.37 crore shares, that is the capital which remains and to add this preferential allotment will happen. So eventually, after all the which is taken into place, we'll be left with about, I think, 11 crore shares, which will be lower than what we are holding today. So this is the point which I explaining to the earlier gentlemen, this will be accreted to all the shareholders.

Exactly. So the equity will go down from 122.5 crores to some 110-odd crores?

That's right.

[Operator Instructions] The next question is from the line of Pankaj, individual investor.

Congratulations, Mr. Nandan and the Escorts management team for such a fantastic deal. I have, sir, 1 question. See, Kubota Japan have close to $16 billion, $17 billion of sales. And the large part of the sales also comes from the overseas market ex of Japan. So my questions are 2. One is that close to 16%, 17% of their global sales are from water and environment division. So can there be any opportunities in that segment, whether the Kubota India -- Escorts Kubota India will venture into that water and environment related? And second is that when we are talking about this export opportunities, for Escorts India Limited, is there would be a transfer of some of these overseas sales, which Kubota right now doing in across geographies. So all the export sales will be happening to the sister companies or we would also be directly exporting to the overseas market?

Just trying to understand your question. So apologies in advance if I answer it wrongly. But I think the last question was whether the sales will happen directly to overseas markets by Escorts Kubota, the new company, or it will happen only to the Kubota subsidiaries or Kubota itself? So the answer is, yes, it will happen both ways, like it is happening even right now, right? So we also export to our own direct distribution, which will continue to exist, and it will happened to Kubota subsidiaries when we supply to Kubota global channel. So I don't think there will be any change really there.

Okay. And this second question is that regarding water and environment, whether there is any scope for new product segments.

Yes, yes. So we are focused right now, we are totally focused on Agri Machinery and Construction business other than that, like engine, et cetera, what we have talked about, we have not discussed apart from this, any other thing. In future, there may be possibilities. But right now, that is not a scope of discussion so far.

Okay. And just 1 more thing. So if I see the global sales of Kubota, see, out of the 65% sales of farm equipment engines, close to 52% happens from overseas. So is Kubota manufacturing across by themselves or they are outsourcing some of their requirements of Japan also overseas to some third party?

So a third party we are not aware of, but they have manufacturing facilities outside Japan as well in many locations. So yes, sales, of course, they are a global company. So their sales is spread out in various continents outside Japan as well. But manufacturing also happens outside Japan in various locations.

Mr. [ Pankaj ], may request that you return to the question queue for follow up questions. The next question is from the line of Nirmal Bari from Sameeksha Capital.

It's just a clarification that I need on the 26% Open offer. So at present, we have about 13.48 crores shares outstanding and we would be issuing another 93 lakh shares Kubota in this preferential allotment. So post this, is the 26% offer on the 14.41 crores as outstanding, would it be on this number? Or would it be on the reduced share base it would have the in cancellation of 1.2 crores shares?

That will be on the expanded capital of 14.41 crores.

Okay. It won't be on the in the reduction even if it happens in between, will not affect the number of shares to be tendered?

SEBI guideline says the day offer is announced on that day, the reduction should have become affected. Now since the reduction is not yet effective and if it happens subsequently, the announcement is happening today, so that's why is not taken in this on. So it will be on the expanded capital basis.

The next question is from the line of Mitul Shah from Reliance Securities.

Am I audible, sir?

Yes, sir.

Yes, yes, Mitul, go ahead.

Sir, I have question on all the JVs and merger. So probably it would be a subsidiary or it will be completely merged entity and all the assembly and all the units of Kubota right now will be a part of this entity now?

Yes, eventually, everything will get merged into Escorts. So Escorts will be surviving entity, Escorts Kubota.

And sir, then any major change in the structure or it will be like a single company only? Or there would be a stage-down subsidiaries and structure may be slightly different.

No subsidary, as of all, there's no plan to ads for the same business is all housed into the single entity. There's a separate business like we've got is cross solution business, which is housing a separate subsidiary, obviously, that will continue. So -- but they'll ultimately get consolidated into the same entity all the 100% owned subsidiary.

So even construction equipment business will also remain like this. It will not be a separate subsidiary?

No, as of now, there is no plan. So we intend to continue in the same entity.

Ladies and gentlemen, due to time constraint, we will take that as the last question. I would now like to hand the conference over to Mr. Madan for closing comments.

Thank you, ladies and gentlemen, for being present on this call For any feedback and queries, please feel free to write in to us at [email protected]. Thank you very much, and have a good evening.

Thank you. Ladies and gentlemen, on behalf of Escorts Limited, that concludes this conference call. Thank you for joining us, and you may now disconnect your lines.