SUMMER TRAINING REPORT SUBMITTED TOWARDS THE

PARTIAL FULFILLMENT OF POST GRADUATE DEGREE IN

INTERNATIONAL BUSINESS

CAPITAL RESTRUCTURING

SUBMITTED BY:
APOORVA BHATEJA
MBA-IB (2009-2011)
Roll No. : A1802009027

INDUSTRY GUIDE FACULTY GUIDE

Mr. Pardeep Kapoor Ashu Jain

Manager Lecturer
Escorts Ltd AIBS

AMITY INTERNATIONAL BUSINESS SCHOOL,

NOIDA
AMITY UNIVERSITY – UTTAR PRADESH

1
 CERTIFICATE OF ORIGIN

This is to certify that Ms. Apoorva Bhateja, a student of Post Graduate

Degree in MBA-IB, Amity International Business School, Noida has worked
in Escorts Ltd, under the able guidance and supervision of Mr. Pardeep
Kumar, Manger Finance, Escorts Ltd.

The period, for which she was on training for 7 weeks, starting from 17th
May to 3rd July. This Summer Internship report has the requisite standard for
the partial fulfillment the Post Graduate Degree in International Business. To
the best of our knowledge no part of this report has been reproduced from
any other report and the contents are based on original research.

Signature Signature
(Faculty Guide) (Student)

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 ACKNOWLEDGEMENT

I express my sincere gratitude to my industry guide Mr. Pardeep Kumar,

(Designation) Manager, (Company) Escorts Ltd, for his/her able guidance,
continuous support and cooperation throughout my project, without which
the present work would not have been possible.

I would also like to thank the entire team of Escorts Ltd, for the constant
support and help in the successful completion of my project.

Also, I am thankful to my faculty guide Mr. Ashu Jain of my institute, for

his continued guidance and invaluable encouragement.

Signature
(Student)

3
 TABLE OF CONTENTS

CHAPTE SUBJECT PAGE

R NO: NO:
1 Executive Summary 6
2 Introduction 8
Objectives 10
3 Industry Profile
• Introduction 12
• Historical Perspective 14
• Farm Machinery Industries in India 16
• Agricultural Machinery Marketing & After
Sale Services 20
• Popularization of Agri-Machinery 21
• Future Thrust in Agricultural Mechanization 22
• Future Perspective in Agricultural Machinery
23
Manufacture

4 Company Profile
• About The Company 26
• Businesses of Escorts 33
• History of Escorts 39
• Outlook of Escorts Sectors 43
• Quality Policy 46
5 Issues and challenges facing the organization 48
6 Reflections on what has been learned during the 50
placement experience
7 Analysis & Findings
• Analysis 52
• Findings 56
8 Recommendations 58
9 Bibliography 60
10 Annexure
a. Tables 62
b. Graphs 64
11 Case Study 66

4
12 Synopsis of the project 74

5
EXECUTIVE
SUMMARY

6
 EXECUTIVE SUMMARY

The title of the project is Capital restructuring, which means to re-allocate

the assets of the company in order to improve liquidity or availability of the
assets. The project includes the definition and benefits of capital
restructuring and also the different aspects which are touched by it. It
includes the objectives of capital restructuring as well.

The project has been done on the capital structure of Escorts Ltd. The
Escorts Group is among India's leading engineering conglomerates operating
in the high growth sectors of agri-machinery, construction & material
handling equipment, railway equipment and auto components. Although
Escorts operates in many sectors but basically it belongs to the agri
machinery industry.

Therefore the project has industry profile of agri machinery industry which
includes introduction to the industry, its historical perspective, different
types of farm machinery industries in India like village craftsmen, tiny and
small scale industries and farm organized industry. Then is how agricultural
machinery is popularized, future thrusts in agricultural mechanization and
finally the industry profile has the future perspective in agricultural
machinery manufacture.

After that comes the profile of the company i.e. company profile of Escorts
Ltd. It explains what Escorts is all about, its founding philosophy and the
corporate social responsibility. Escorts is into different businesses like
i) Agri machinery,
ii) Engineering which includes railway equipment and auto component,
and
iii) Construction Equipment

In this project we first study the cost of borrowed funds in the capital
structure of Escorts Ltd. Then we find a suitable blend of debt and equity
which will maximize the shareholders rate of return. This forms the analysis
part of the project.

7
INTRODUCTIO
N

8
 INTRODUCTION

Capital Restructuring
Capital is generally the assets, often monetary, that are available to generate
more assets. Thus the liquidity of capital should be high. Restructuring them
means re-allocating them to improve their availability (liquidity). The
process requires selling assets to buy different ones in order to improve your
capital (monetary) position so that you can improve your asset position thus
enabling you to earn more with them. It is generally undertaken by
companies that are generally doing poorer than expected and wish to
stabilize future performance of their assets.

Objectives of Capital Restructuring

1 To enhance the shareholder value. For this the company should

continuously evaluate its:

a) Portfolio of businesses,
b) Capital mix,
c) Ownership &
d) Asset arrangements to find opportunities to increase the share
holder’s value.

2 To focus on asset utilization and profitable investment opportunities.

3 To reorganize or divest less profitable or less making

business/products.

4 The company can also enhance value through, it can innovate

securities that help to reduce cost of capital.

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Capital Restructuring touches upon the following aspects:

1. Leverage of the company:

This is essentially the Debt: Equity Ratio. Here, companies have the
option of undertaking Debt Restructuring - especially if it is a Debt -
laden company (high debt leveraged company).

Debt Restructuring: It is a process that allows a private or public

company - or a sovereign entity - facing cash flow problems and
financial distress, to reduce and renegotiate its deliquent debts in order
to improve or restore liquidity and rehabilitate so that it can continue
its operations.

2. Investment Pattern:
This relates to ability of corporations to identify the various
investments opportunities that would lead to higher returns.

3. FDI Participation:
This aspect relates to the change in structure of the shareholding due
to the increasing FDI inflows.

4. Divestitures:
As stated earlier in the types of Divestiture in Portfolio and Asset
Management, this aspect relates to divesting divisions and / or
businesses to improve the financial standing of the organization.

Benefits of Capital Restructuring

a) Greater Financial Muscle

b) Access to Better / Greater Technologies
c) Focus on Core Competencies

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Objectives of the study
1 To understand and observe the practical work in escorts.

2 To seek out the difference between theory and practical work.

3 To observe the functioning of finance department of escorts.

4 To gain knowledge about different policies of escorts.

5 To develop new skills.

6 To have a direct contact with the employees of Escort to learn from

them.

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INDUSTRY
PROFILE

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 INDUSTRY PROFILE

A INTRODUCTION

Farm mechanization helps in effective utilization of inputs to increase

the productivity of land and labor. Besides it helps in reducing the
drudgery in farm operations. The early agricultural mechanization in
India was greatly influenced by the technological development in
England. Irrigation pumps, tillage equipment, chaff cutters, tractors
and threshers were gradually introduced for farm mechanization. The
high yielding varieties with assured irrigation and higher rate of
application of fertilizers gave higher returns that enabled farmers to
adopt mechanization inputs, especially after Green revolution in
1960s. The development of power thresher in 1960, with integrated
Bhusa making attachment and aspirator blower and mechanical sieves
for grain and straw separation, was the major achievement of Indian
engineers. These threshers were widely adopted by the farmers.
Gradually demand for other farm machinery such as reapers and
combine harvesters also increased. Equipment for tillage, sowing,
irrigation, plant protection and threshing have been widely accepted
by the farmers. Even farmers with small holdings utilize many
improved farm equipment through custom hiring to ensure timeliness
of farming operations. The present trend in agricultural mechanization
is for high capacity machines through custom hiring and for
contractual field operations. However, mechanization of horticulture,
plantation crops and commercial agriculture is yet to be introduced in
the country. The pace of farm mechanization in the country
accelerated with the manufacture of agricultural equipment by the
local industries. With the modest beginning of manufacture of tractors
in 1960s with foreign collaboration, to-day the Indian farm machinery
industries meet the bulk of the requirement of mechanization inputs
and also export. The manufacture of agricultural machinery in India is
quite complex comprising of village artisans, tiny units, small-scale
industries, State Agro-Industrial Development Corporations and
organized tractor, engine and processing equipment industries.
Traditional hand tools and bullock drawn implements are largely
fabricated by village craftsmen (blacksmith and carpenters) and small-
scale industries. The small-scale industries depend upon public

13
institutions for technological support. These industries, however,
upgrade these designs and production processes with experience.
Organized sectors confine to the manufacture of machines like
tractors, engines, milling and dairying equipment.

These industries have adopted sophisticated production technologies,

and some of them match international standards. The enhanced scope
of import of technology (product designs and manufacturing process)
by organized sector and entry of foreign investors is likely to
accelerate exports. Since cost of production of farm machinery in
India is more competitive due to lower labour wages, the importers
from various Countries will find Indian farm equipment more
attractive. Indian products, however, shall need improvements in
quality for gaining major export growth. For this, mass production of
critical and fast wearing components and their standardization would
greatly help.

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B HISTORICAL PERSPECTIVE

Blacksmiths and carpenters have been the traditional fabricators of

agricultural equipment in India. The early agricultural mechanization
in India was greatly influenced by the technological development in
England.
In 1889, Watts and Kaisar introduced ploughs, corn grinders and chaff
cutters Cawnpore (now Kanpur) Experimental Farm in Uttar Pradesh.
Sardar Joginder Singh (1897-1946), who was the Agriculture Minister
in the Punjab Government (1926-37), introduced the steam tractors in
India in 1914 for reclamation of waste land and eradication of ‘Kans’.
Horse drawn and steam tractor operated implements were imported
during the latter part of the 19th century. The horse drawn equipment
imported from England were not suitable for bullocks and he-
buffaloes used in India and thus, were suitably modified by small
scale manufacturers to suit Indian draught animals. With the
establishment of Allahabad Agricultural Institute, Allahabad in 1942,
the development activities in agricultural machinery accelerated and
as a result bullock drawn Meston, Shabash and Wah-Wah ploughs
were introduced in Uttar Pradesh, manufactured by the Agricultural
Development Society, Naini in early forties.

The Indian farmers gradually responded to farm mechanization

technology especially after Green revolution in 1960s. High yielding
varieties with assured irrigation and higher rate of application of
fertilizer gave higher yields and better economic returns. This enabled
the farmers to start adopting mechanization. The development of
power thresher with integrated Bhusa making attachment and
aspirator blower and mechanical sieves for grain and straw separation
in 1960s was the major achievement of Indian engineers which was
widely adopted by our farmers. Gradually demand for other farm
machinery such as reaper and combine harvester also increased.
Demand of tractors in the country was met through importation until
1961 when Eicher Tractors Ltd. and Tractors and Farm Equipment
Ltd started manufacturing tractors with foreign collaborations. To
meet the additional demand, importation continued up to 1977.
Meanwhile many other industries started manufacturing tractors with
foreign know how such as Gujarat Tractors Ltd (1963), Escorts Ltd
(1966), International Tractors (India) Ltd. (1966), and Hindustan

15
Machine Tools Ltd (1977). Punjab Tractors Ltd. started their
production with indigenous Technology in 1974. Many more
industries started manufacturing tractors since then with indigenous
and foreign know how.

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C FARM MACHINERY INDUSTRIES IN
INDIA

The adoption of mechanization technology depends upon the local

manufacture and after-sales-services besides credit and financial
incentive provided by the Government. The manufacture of
agricultural machinery in India is quite complex comprising from
village artisans, tiny units, small scale industries to State Agro-
Industrial Development Corporations and organized tractor, engine
and processing equipment industries. Traditional hand tools and
bullock drawn implements are largely fabricated by village craftsmen
and small scale industries. Organized sectors manufacture
sophisticated machinery such as tractors, engines, mills and dairying
equipment. The small-scale industries seldom have R&D facilities and
they depend upon public institutions for technological support. They
require not only drawings but also prototypes and technical guidance
to manufacture the equipment. These industries however, upgrade the
technology with experience.

Classification of Industries
The classification of industries in India is based on total capital
investment (plant and machinery) rather number of workers
employed. These are (i) village craftsmen, (ii) cottage industries, (iii)
tiny industries, (iv) small scale industries, (v) medium scale industries
and (vi) large scale industries. This classification was done to help the
small-scale units through incentives and marketing support.

Category Maximum Capital Investment

Village artisans and cottage Unorganized in rural areas
industries
Tiny industries Rs. 15 lakhs
Small scale industries Rs. 1 crore
Medium scale industries Rs. 5crores

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Village craftsmen

Village artisans are the main source of supply and repair and maintenance of
hand tools and traditional implements are made by village craftsmen. These
include implements and tools like khurpi, spade, sickle, local ploughs,
bakhar, sowing devices, yokes, patela, leveller, oil ghanis, grinding wheels,
hand mills, handoperated milk churning tools, winnowing devices, sieves,
wooden storage structures, bullock carts, manual water lifting devices etc. If
village artisans are properly trained they will accelerate the adoption of
mechanization inputs due to their proximity with farmers.

Tiny and small-scale industries

The tiny and small scale units fabricate bulk of improved agricultural
machinery such as ploughs, cultivators, disc ploughs and harrows, seed
drills, planters, plant protection equipment, reaper harvesters, combine
harvesters, threshers, cleaners, graders, mills, crushers, oil expellers, diesel
engines, irrigation pumps, dairy machinery etc. Agricultural machines are
reserved for small-scale units. There are more than 18000 such units
scattered all over the country but have concentration in selected regions.

Some of these units also fabricate implements and equipment for tractor and
power tiller manufacturers. They may lack good machine tools and heat
treatment facilities. Some of them are more organized and have better
fabrication toolings and thus are able to manufacture better quality
machinery. The bulk of the farm machinery is made by the small-scale
industries. They use materials from mild steel to medium carbon steel. Heat
treatment practices are generally inadequate except in few industries
manufacturing knife & tillage tools. Equipment manufactured by the SSI
units includes Soil working tools, seeding & planting equipment, hand hoes,
sprayers & dusters, harvesting & threshing equipment, like reapers,
threshers, combines, maize shellers, decorticators, cleaners, graders, mills,
oil expellers etc.

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Regions having concentration of agricultural machinery

Northern region
Ludhiana, Moga, Jalandhar, Goraya, Batala, Hoshiyarpur, Karnal,
Panipat, Faridabad, Delhi, Agra, Ghaziabad, Meerut, Rudrapur,
Muzaffarnagar, Lucknow, Kanpur, Fatehpur and Allahabad.

Western region
Bombay, Pune, Nagpur, Ahmed Nagar, Sangli, Kolhapur, Sholapur,
Ahmedabad, Baroda, Anand, Junagarh, Bhopal, Indore, Dewas, Bina,
Khurai, Raipur, Vidisha and Gwalior.

Southern region
Hyderabad, Guntur, Anantpur, Kakinada, Coimbatore, Madurai,
Chennai, Salem, Palghat, Ernakulam, Kochin and Bangalore.
Eastern region

Calcutta, Vardhaman, Durgapur, Bhubaneswar, Sambhalpur, Patna,

Ranchi, Dhanbad and Muzaffarpur.

Organized farm machinery industries

The medium scale and large scale industries manufacture diesel engines,
electric motors, irrigation pumps, sprayers and dusters, land development
machinery, tractors, power tillers, post harvest and processing machinery
and dairy equipment. There are 13 tractor, 2 power tiller, 200 diesel engine,
600 irrigation pump, 48 combine and 188 earthmoving machinery
manufacturers (Table 21). The marketing of agricultural machinery by these
industries is through their network of dealerships and, therefore, these
manufacturers are able to provide effective after-salesservice. These

19
industries upgrade their product and process technologies through their own
R&D efforts, in addition to technological support from external agencies.
Today, India is recognized as a leading country in the world for the
development and manufacture of agricultural implements and equipment.
The range of equipment includes, tractors, harvesting and threshing
equipment, plant protection machines, irrigation and drainage pumps,
sprinkler systems, land development machinery, dairy and agro-processing
equipment, etc. India is the exporting increasing volumes of these to various
countries including USA, Africa, Asia, etc.

Status of farm machinery industries in India

Equipment manufacturers No. of units

1. Agricultural tractors 13
2. Power tillers 2
3. Earth movers 3
4. Pumps 600
5. Sprinkler set 35
6. Drip irrigation system 35
7. Plant protection equipment 300
8. Combines 48
9. Reapers 60
10. Threshers 6000
11. Seed drills 2500
12. Ploughs, cultivator and harrows 5000
13. Tractors parts and accessories 546
14. Earth moving machinery and parts 188
15. Diesel oil engines 200
16. Rice processing machinery 300
17. Sugarcane crusher 50
18. Chaff cutter 50
19. Dairy and food industries 500

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20. Village craftsmen 1 million

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D Agricultural Machinery Marketing and After
Sale Services

The large and medium scale manufacturers have well organized distributors
and dealers through out the country to undertake advertising and product
promotion in their respective territories, conduct product awareness training
programmes for the prospective customers, provide after-sales-service to the
customers including free services, repair and maintenance, supply of parts,
etc. Therefore, this organized sector has the whole of the country as their
market due to which their production volumes are large, and their
information feed back about their product performance, improvements
required in design, production processing or quality, and the new
requirements of the farmers to undertake product developments.

Very few small-scale industries have established their marketing network

and therefore provide service support in their premises. In the absence of
standardization of parts and components farmers are compelled to carry their
machines to the manufactures for repair and replacement of parts and
components. Due to this, their market size is limited to their proximity, and
they are not able to develop their businesses. The village artisans on the
other hand are located in the villages and therefore provide immediate
attention to the needs of the farmers in their immediate neighborhoods.
Therefore, the tools and implements, etc. made by them are against specific
requirements of individual customers .

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E Popularization of agricultural machinery

The assimilation of R & D requires an effective technological

infrastructure of institutions and services to develop and test
prototypes, to set up pilot plants for intensive evaluation and extensive
demonstrations besides, training and credit support. New technology
also requires network for transfer of technology to the manufactures.
Popularization of agricultural machinery in the country is undertaken
by the Provincial Governments through Department of Agriculture or
Department of Agricultural Engineering. The activities are
coordinated by the Department of Agriculture in Cooperation with the
Ministry of Agriculture, Government of India. The Ministry of Food
Processing promotes technology related to agro-processing. The
extension system deals with the first-line extension projects with a
view to: (i) demonstrating the latest technologies to the farmers as
well as the extension agencies; (ii) testing and verifying the
technologies on the farmers field (iii) providing opportunities to get
firsthand scientific feed-back; (iv) developing extension or
technological models for the state extension systems; (v) providing
training and communication support; and (vi) promoting research in
transfer of technologies.

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F FUTURE THRUSTS IN AGRICULTURAL
MECHANIZATION

India is a large country with wide-agro ecological diversity having

predominance of rain fed agriculture, with irrigated agriculture limited
to 34% only. Farm holdings are small due to higher population density
and land fragmentation will continue due to ‘Laws of Inheritance’ and
‘Hindu Succession Act’. Majority of the farmers have limited surplus
money to modernize farms or to invest in improved inputs. Draught
animals and increasing agricultural workers population may remain to
be the major source of farm power for soil manipulation and for crop
handling, particularly in Hill and Mountain regions. Mechanical
power for tillage, irrigation, harvesting and threshing will be
preferred, including on custom hiring basis. As a result of GATT
agreement, prospects of agro-export are likely to increase and product
quality standards stipulated under WTO would encourage more and
more farmers to adopt modern agricultural production technologies.
The future agricultural mechanization technology package therefore
may have to;
• be eco-friendly utilizing land water and bioresource catering to the
varied group of farm holders,
• facilitate farming operations which are arduous and hazardous,
• increase productivity and conserve resources through effective
utilization of chemical, biological and mechanical inputs, and
• modernize commercial agriculture to facilitate agro-export.

Keeping above objectives, the mechanization policy may have to be

distinctly different to serve hill agriculture, low lying water logged
soils; rain fed and irrigated lands and regions having agro export
potential.

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G FUTURE PERSPECTIVE IN
AGRICULTURAL MACHINERY
MANUFACTURE

Equipment for tillage, sowing, irrigation, plant protection and

threshing has been widely accepted by the farmers in India. Draught
animal and human power in India will continue to be used, but these
are inadequate to ensure timeliness of agricultural operations. Even
farmers with small holdings utilize selected improved farm
equipment, including through custom hiring. The future
mechanization strategy may have to be based on agro-ecological
diversity and economic disparity of the farmers. The present trend in
agricultural mechanization is for high capacity machines to be used on
custom hiring and for contractual field operations.

Rice mechanization, sugarcane mechanization, cotton mechanization,

potato mechanization, horticulture mechanization, green house and
covered cultivation, drip and micro irrigation are new emerging areas
which need attention of Agricultural Engineering Institutions and
industries for their development, production and marketing.

Water is a scarce commodity and in future with increasing demand

for more irrigation water, concerted efforts will be needed for
controlled application of water through drip, sprinkler and micro-
sprinkler systems to economize use of water and improving water use
efficiency.

With the shift in agriculture towards diversification and agri-business,

substantial areas will go under horticultural crops. This will also help
to export good quality high value agri-products for better returns to
farmers and to earn more foreign exchange. The green house
technology offers ample scope for increasing productivity particularly
of high value cash crops like exotic fruits, flowers and bio-tech plants.
Design of green house with environmental control mechanized
cultivation and product-handling technology package will assume
greater importance.

25
Presently little effort has been made to mechanize hill agriculture,
where there is tremendous potential of growing horticultural crops,
flowers etc. In future this calls for developing appropriate
technologies for mechanization.

In order to enforce quality, reliability and safety in the manufacture of

agricultural implements, manufacturing of critical components need to
be standardized and encouraged for mass production by medium and
large scale manufacturers. Keeping long standing demand of farmers
and the Ministry of Agriculture and on the recommendation of the
Advisory Committee of the Ministry of Industries, the Union Budget
of India 1998-99, announced the exclusion of farm implements and
tools from the list of items reserved for manufacture by small scale
industries sector to enable the farmers to get benefit of wider range of
implements and tools at competitive prices, and with requisite after
sale- service. The decision of the Government of India to de-reserve
the manufacture of farm machinery will help the organized sector to
bring latest farm machinery technology for accelerated adoption by
the farmers. The small-scale industries in turn will adopt the
technology for local manufacturing at a much lower cost. This will
help the small-scale sector to become more competitive and to enlarge
their market size.

However, the constraints experienced in the growth of farm

mechanization so far need to be dealt with so that the farmers are
enabled to adopt new methods to produce more, to earn more through
gains in productivity, quality of produce, higher prices, etc, for raising
their standards of living and better life styles.
The critical constraint factors are:
• Reliability and quality of agricultural machinery.
• Availability of products, spare parts and after sales-services in close
proximity.
• Availability of Bank credit on terms where currently the farmers
have to mortgage both the equipment purchased and his land.
• Lack of effective consumer protection in rural areas for redressel of
cases of product problems, and poor after-sales- services, etc.

26
COMPANY
PROFILE

27
 COMPANY PROFILE

A ABOUT THE COMPANY

The Escorts Group is among India's leading engineering

conglomerates operating in the high growth sectors of agri-machinery,
construction & material handling equipment, railway equipment and auto
components.

Having pioneered farm mechanization in the country, Escorts has played a

pivotal role in the agricultural growth of India for over five decades. One of
the leading tractor manufacturers of the country, Escorts offers a
comprehensive range of tractors, more than 45 variants starting from 25 to
80 HP. Escort, Farmtrac and Powertrac are the widely accepted and
preferred brands of tractors from the house of Escorts.

A leading material handling and construction equipment manufacturer, we

manufacture and market a diverse range of equipment like cranes, loaders,
vibratory rollers and forklifts. Escorts today is the world's largest Pick 'n'
Carry Hydraulic Mobile Crane manufacturer.

Escorts has been a major player in the railway equipment business in India
for nearly five decades. Our product offering includes brakes, couplers,
shock absorbers, rail fastening systems, composite brake blocks and
vulcanized rubber parts.

In the auto components segment, Escorts is a leading manufacturer of auto

suspension products including shock absorbers and telescopic front forks.
Over the years, with continuous development and improvement in
manufacturing technology and design, new reliable products have been
introduced.

28
Throughout the evolution of Escorts, technology has always been its greatest
ally for growth. In the over six decades of our inception, Escorts has been
much more than just being one of India's largest engineering companies. It
has been a harbinger of new technology, a prime mover on the industrial
front, at every stage introducing products and technologies that helped take
the country forward in key growth areas. Over a million tractors and over
16,000 construction and material handling equipment that have rolled out
from the facilities of Escorts, complemented by a highly satisfied customer
base, are testimony to the manufacturing excellence of Escorts. Following
the globally accepted best manufacturing practices with relentless focus on
research and development, Escorts is today in the league of premier
corporate entities in India.

Technological and business collaboration with world leaders over the years,
Globally competitive indigenous engineering capabilities, over 1600 sales
and service outlets and footprints in over 40 countries have been
instrumental in making Escorts the Indian multinational. At a time when the
world is looking at India as an outsourcing destination, Escorts is rightly
placed to be the dependable outsourcing partner of world's leading
engineering corporations looking at outsourcing manufacture of engines,
transmissions, gears, hydraulics, implements and attachments to tractors, and
shock absorbers for heavy trailers.

In today's Global Market Place, Escorts is fast on the path of an internal

transformation, which will help it to be a key driver of manufacturing
excellence in the global arena. For this we are going beyond just adhering to
prevailing norms, we are setting our own standards and relentlessly pursuing
them to achieve our desired benchmarks of excellence.

29
THE FOUNDING PHILOSOPHY

Over six decades back two young men set out on a journey together armed
with little beyond intelligence, business acumen and determination and
dreams aplenty. They believed that India could only achieve total freedom
with a breakthrough in the field of agriculture and mechanization would
have to rule the fields. Their youthful enthusiasm had kindled the hope that
one day they would make a mark of their own. They were in fact writing the
first chapter of what has come to be widely recognized as one of the greatest
success stories in Indian industry.

Escorts came into being with a vision. A vision that eschewed easy paths to
profitability, and sought instead for ways to make a contribution. A vision
that led two young brothers, Yudi and Hari Nanda, to branch out of their
family's prospering transport business and institute ventures that were to
become the foundations of Escorts Limited. On 17th October 1944, Escorts
Agents Limited was born at Lahore (now in Pakistan) with Mr. Yudi Nanda
as Managing Director and Mr. Hari Nanda as Chairman. It was a trend-
setting marketing house driven by the same business philosophy, which had
given their family enterprise an unrivalled reputation: customer concern. Not
long afterwards, this driving ambition to go beyond the expected led Hari
Nanda to the first of his many successful business insights - the discovery of
the great business potential that lay in India's villages. This led to the launch,
in 1948, of Escorts (Agriculture and Machines) Ltd., with Yudi Nanda as
Director. Though separate business entities then, both companies had two
great strengths in common: the dynamic Nanda brothers and the unifying
force of the name they gave their companies; Escorts, literally 'escorting'
their products and services to the customer while most other businessmen
were just selling.

Tragically, Mr. Yudi Nanda died in an accident in 1952 - but his spirit
remained embedded in the foundations of the company. Mr. H P Nanda then
took on the mantle to realize the dreams which he had always seen with his
brother.
Escorts (Agents) Ltd. and Escorts (Agriculture and Machines) Ltd. merged
in 1953 to create a single entity -Escorts Agents Pvt Ltd. Having initially
started with a franchise for Westinghouse domestic appliances, by this time
the Company had already expanded its marketing and service operations,
representing internationally known German and American organizations

30
such as MAN, AEG, Haniel & Leug, Knorr Bremse, MIAG and BMA for
sophisticated electrical and mechanical engineering equipment and
Minneapolis Moline and Wisconsin for agricultural tractors, implements and
engines. Escorts made a major thrust into the agricultural arena by taking on
the marketing and service franchise for Massey Ferguson tractors in
Northern India, which soon comprised 75% of MF's all-India sales - a signal
tribute to Escorts' inherent strengths. Its first industrial venture came up in
1954, in partnership with Goetzewerke of Germany for the manufacture of
piston rings and cylinder liners - followed by production of pistons in
collaboration with MAHLE, also of Germany, in 1960. The company's
incorporation in its present name, Escorts Limited, was effected on 18th
January, 1960. Escorts' next major industrial activity was the assembly of
tractors in 1961 in technical cooperation with URSUS of Poland.
Subsequently this led to the manufacture of the country's first indigenous
tractors under Escorts' own brand name, which were to play a pivotal role in
the Green Revolution. This went on to lay the foundations that even today
are the Company's core strengths -relevant, world-standard technology
through strategic international alliances; a broadbased marketing and service
network yet unrivalled; powerful symbiotic relationships with suppliers and
dealers; and above all, the crusade to make a difference.

Beyond the growth of the organization, these principles have ensured that
Mr. H. P. Nanda's contribution to the cause of industry and the consumer
will endure. He pioneered the revolutionary concept of 'interdependence'
between ancillary and large industries, institutionalizing vendor
development and in the process building Faridabad and the entire belt of
townships in the region. He introduced the discipline of service going before
marketing, reassuring the customer that Escorts would stay with them, that
they were here for the long run. He built lasting alliances with an array of
the world's most respected names in tractors, industrial equipment, two-
wheelers, construction equipment and telecommunications. Going further,
he created institutions devoted to value engineering and training, not only as
investments in the company's future but also as catalysts for the
enhancement of Indian industry as a whole the Escorts R&D Centre and the
unique Escorts Institute of Farm Mechanization. His concern extended to the
society in which he worked, and he manifested it by establishing the Escorts
Medical Centre at Faridabad, Escorts Heart Institute and Research Centre at
New Delhi, as well as numerous village development programmes. And
above all, he imbued the corporation with his own pioneering,
entrepreneurial spirit, instilling both a conscience and a vision of leadership.

31
Escorts is testimony to the valor, vision and values of its Founder Mr. H P
Nanda. He remains the inspiration for our courage, spirit of adventure and
ability to ‘Think Big’. These qualities are his enduring legacy and have
inspired and encouraged us down the decades and will continue doing so in
all our endeavors.

32
CORPORATE SOCIAL RESPONSIBILITY

CORPORATE SOCIAL RESPONSIBILITY CHARTER

At Escorts Limited, we are committed to making a positive difference in the

socio economic fabric of the rural communes where we operate in. Being in
a position of advantage, we recognize our responsibility in fostering
sustainable development in the rural communities. We strive to earn the
respect and trust of our stakeholders, be it the employees who work for us,
the customers who buy our products or the environment that we work in. In
the last two decades, Escorts has made a concerted effort in making the
benefit of progress reach the backward section of the community.

Employees

Escorts Limited is committed to providing a safe, secure, fair and

stimulating work environment to its employees that empowers them to not
only make a meaningful contribution to the organization’s performance but
also helps in per
sonal and professional growth of the employee.

The company has implemented systems that promote safety at workplace

and have contributed to reductions in lost time injury rates. Educative
seminars are conducted on a regular basis for workers where they are
exposed to various training and skill development programmes including
Fire Fighting demonstration & training, safety seminars etc. to euip
employees to work safely. We also provide effective rehabilitation programs
for our employees. At Escorts, health awareness drives are a regular
occurrence where workers are given counseling on personal hygiene, polio
awareness, eye care and general health. We also organize health check up
camps for our employees and their families. For children of our employees,
we regularly organize career counseling sessions to help build their future.

Community

As a good corporate citizen, Escorts engages in activities that contribute to

the society. The company has conducted numerous awareness generation
campaigns in the rural areas on effective agriculture and horticulture
practices. The company has given assistance to farmers by making available

33
certified seeds, fertilizers and pesticides for improved agricultural output,
liaisoning with banks and district agencies for the generation of bank loans
and government subsidies, or educating the farmers on preservation of food
grains

Besides this, Escorts has been promoting the “Social Forestry Programme”
in order to improve the environment in and around the villages of rural
Haryana, where its factories are based. Under this programme 8690 fruit
trees and saplings have been planted over a land area of 25 acres and 19200
fruit plants have been distributed to farmers for growing orchards till date.
Escorts has been taking active part in the “Green Haryana Campaign” and
thousands of trees have been planted on the National Highway to combat the
menace of air pollution.

Escorts has also joined hands with a number of external agencies and NGOs
working in the field of community development. A complete programme on
“quality reproductive health care services”, covering 25 villages in the
Faridabad District is being run with the able support and help of “The
Population Foundation of India”. Escorts also works in collaboration with
the National Association for the Blind in the field of prevention of blindness.
This programme includes activities i.e. administering vitamin A, free
screening of the school going children, distribution of glasses and the like.
Besides this, Escorts also allocates funds for other agencies, working in the
field of improving rural environment, to run income generation programme,
and upliftment of the rural poor.

34
B BUSINESSES

Escorts has three types of businesses:

1 Agri Machinery
2 Engineering Division
3 Construction Equipment

1 Agri Machinery

Background
In 1960, Escorts set up the strategic Agri Machinery Group (AMG) to
venture into tractors.
In 1965, we rolled out our first batch of tractors under the brand name of
Escort.
In 1969 a separate company, Escorts Tractors Ltd., was established with
equity participation of Ford Motor Co., Basildon, UK for the manufacture
of Ford agricultural tractors in India.
In the year 1996 Escorts Tractors Ltd. formally merged with the parent
company, Escorts Ltd.
Since inception, we have manufactured over 1 million tractors.

Technologies
Escorts AMG has three recognized and well-accepted tractor brands,
which are on distinct and separate technology platforms.
Farmtrac: World Class Premium tractors, with single reduction and
epicyclic reduction transmissions from 34 to 75 HP.
Powertrac: Utility and Value-for-money tractors, offering straight-axle and
hub-reduction tractors from 34 to 55 HP. India’s No.1 economy range –
engineered to give spectacular diesel economy.
Escort: Economy tractors having hub-reduction transmission and twin-
cylinder engines from 27 to 35 HP. Pioneering brand of tractors introduced
by Escorts with unbeatable advantages.

35
International Subsidiaries
Escorts AMG has one international subsidiary.
Farmtrac Tractors Europe.
They now cater to 41 countries.

Functional Excellence
Manufacturing
Quality Assurance
Materials Management
Sales & Marketing
Knowledge Management
Finance
Human Resources
Information Technology

Beyond manufacture, Escorts has made substantial investments towards the

modernization of farm technology. The Escorts Institute of Farm
Mechanization (EIFM) at Bangalore is a unique center where training is
imparted in operation, maintenance and repair of farm machinery. It is
among the few institutions of its kind in the world. Its programs are aimed at
encouraging customers, dealers, engineers, mechanics as well as the field
staff of Escorts, towards meeting its objective of enhancing agricultural
productivity and improving quality of life in rural India.

36
2 Engineering Division

A. Railway Equipment

Escorts is a leading manufacturer of critical railway components since

the last 40 years. It is one of the oldest and most trusted partners of
Indian Railways, the largest rail network in the world. Having played
a significant role in the growth and modernization of Indian Railways,
today it is a multi-product, multi-technology business at Escorts.

Broad Product Portfolio

Shock Absorbers
Couplers
Brake Systems
Brake Blocks

An ISO: 9001-20000 certified company, Escorts manufactures

products as per international standards specified by UIC, AAR and
Indian Railways. The products are exported to over 15 countries
worldwide.

A state of the art manufacturing facility located at Faridabad, near

New Delhi has facilities for advanced product development, design,
testing and validation. The in-house Research & Development has
played a critical role in bringing about a high level of customer
satisfaction, reliability and safety - the key drivers of business.

Escorts’ engineering experts have trained over 8000 railway personnel

of various countries. As Asia’s largest manufacturer of air brake
systems, the conversion of vacuum brake stocks to air brakes and
installation and commissioning of complete brake systems on new
builds are also undertaken by Escorts.

37
B Auto Components

The Engineering Division of Escorts Ltd. is the leading manufacturer

of auto suspension products including shock absorbers, struts and
telescopic front forks. Escorts was the pioneer in Automotive Shock
Absorber manufacturing in India in 1966 in Technical Collaboration
with Fichtel & Sachs, Germany. Over the years the technology
obtained from Fichtel & Sachs of Germany has been continuously
upgraded and new reliable products have been introduced. Another
step forward in this direction is a comprehensive technical
collaboration with world leaders Kayaba of Japan. A strong in-house
design and development infrastructure of the Division enables
introduction of new applications as per specifications of customers.

Broad Product Portfolio

Shock Absorbers
Front Forks
McPherson Struts

Technical Collaboration
Fichtel & Sachs, Germany (1966 - 75)
Kayaba, Japan (for Motorcycle Front Forks & Shock Absorbers) since
1998

Quality Systems
Obtained TS:16949 in 2004 ( Earlier ISO-9001 )
Adopted KAYABA Quality Systems as a subset of TS:16949

Business Philosophy
Customer Satisfaction - QCD
Continuous Benchmarking with KAYABA, Japan
KAIZEN - For Quality & Productivity

Production Capacity Per Annum: 5 million (Shock Absorbers, Front

Forks, McPherson Struts)

Markets
2 Wheelers & 3 Wheelers - OEMs and After Market
MUV / LCV / HCV - OEMs and After Market
Passenger Cars - After Market

38
3 Construction Equipment

Escorts manufacturers and markets a diverse range of construction

and material handling equipment like cranes, loaders, vibratory rollers
and forklifts. The company was a pioneer in introducing the concept
of Pick 'n' Carry hydraulic mobile cranes in the 70s in India and
continues to be the world's largest manufacturer of these cranes.

A nationwide network of 16 Sales Offices, 50 dealership locations,

over 300 company trained dealers’ service engineers, gives it the best
market reach in India for the Sales & Service of material handling and
construction equipment.

With over 30 years experience in Construction Equipment Industry,

Escorts has a proven track record in:

Hydraulic Mobile Cranes

Loaders
Forklifts
Vibratory Compactors

Today, it not only continues to be the largest mobile crane

manufacturer in the country, but also the largest Pick ‘n’ Carry
Hydraulic Mobile Crane manufacturer in the world.

While recording a rapid growth in Crane Industry we’ve also been

able to steadily increase our presence in the field of Vibratory, Soil &
Tandem Compactors. Escorts was the first to bring the concept of
Vibratory Compactors in India in a big way, back in 80’s.
Subsequently more models in Tandem Vibratory Compactors and
heavy duty Soil Compactor range were added in technical
collaboration with HAMM Germany. Recently, we’ve further
strengthened the range with a 3T Shoulder Compactor. Today our
range of compaction equipments is one of the most preferred in the
market, and is being viewed as the most efficient and effective
compaction solutions available in the country.

Along with Cranes and Compactors, we also manufacture Frontend

loaders with payload capacity of 700kgs. Suitable for narrow lanes
and confined spaces, these loaders are compact in design and are ideal

39
for garbage handling, handing of chemicals, sands, small chips, etc.

Escorts also offers other material handing solutions like Forklifts from
Daewoo Doosan Infracore Ltd., Korea and Articulated boom cranes
from Fassi, Italy. In LPG Forklift category, the company enjoys a
market share in excess of 85%.

This single-minded pursuit of precision and customer satisfaction has

made us the 3rd largest in terms of Construction Equipment Sales unit
per annum.

40
C THE HISTORY OF ESCORTS

The genesis of Escorts goes back to 1944 when two brothers, Mr. H.
P. Nanda and Mr. Yudi Nanda, launched a small agency house,
Escorts Agents Ltd. in Lahore. Over the years, Escorts has surged
ahead and evolved into one of India's largest conglomerates. In this
journey of six decades, Escorts has had the privilege of being
associated with some of the world leaders in the engineering
manufacturing space like Minneapolis Moline, Massey Ferguson,
Goetze, Mahle, URSUS, CEKOP, Ford Motor Company, J C Bamford
Excavators, Yamaha, Claas, Carraro, Lucky Goldstar, First Pacific
Company, Hughes Communications, Jeumont Schneider, Dynapac .
These valued relationships be it technological or marketing, are our
highly cherished experiences treasures, which have helped us
inculcate best in class manufacturing practices and to emerge as a
technologically independent world class engineering organization.

1944 - Launch of Escorts (Agents) Ltd.

1948 - Pioneered farm mechanization in the country by launching

Escorts Agricultural Machines Limited, with a franchise from the U.S.
based Minneapolis Moline, for marketing tractors, implements,
engines & other farm equipment. Launch of Escorts (Agriculture and
Machines) Ltd.

1949 - Franchise of Massey Ferguson tractors for northern India

1951 - Escorts established India’s first private Institute of Farm

Mechanisation at Delhi.

1953 -Escorts (Agents) Ltd. and Escorts (Agriculture and Machines)

Ltd. merged to form Escorts Agents Pvt. Ltd.

1954 - 1st industrial venture of Escorts to manufacture piston rings in

collaboration with Goetze of Germany, in an era when joint ventures
of Indian firms with foreign companies were virtually unheard of.

1958 - Started importing Massey Ferguson tractors from Yugoslavia

41
for marketing the same in India.

1959 - Collaboration with Mahle of Germany to manufacture pistons.

Soon, Escorts became the largest producer of piston assemblies in
India.

1960 - Set up of Escorts Limited

1961- Setting up of manufacturing base at Faridabad for manufacture

of tractors in collaboration with URSUS of Poland and 50%
indigenous components. Launch of Escort brand of tractors.
Collaboration with CEKOP of Poland for manufacture of motorcycles
and scooters. Escorts moves into high gear by nurturing the two
wheeler culture. The first Rajdoot motorcycle rolls off the assembly
line.

1969 - Escorts Tractors Limited was born. A technical and financial

joint venture with the global giant Ford Motor Company, USA, to
manufacture Ford tractors in India. The years ahead saw Escorts grow
as the largest tractor manufacturer in India.

Escorts Institute of Farm Mechanisation (EIFM) established at

Bangalore.

Escorts Employees Ancillaries Ltd. (EEAL), a unique venture in

industrial democracy comes into being.

1971 - 1st February, the first tractor FORD 3000 rolled out of the
factory.

Escorts diversifies and starts manufacturing construction equipment.

1974 - Crossing national boundaries, Escorts exports for the first time.
After winning a global tender, 400 tractors were exported to
Afghanistan, which was perhaps the world's largest ever airlift of
tractors.

1976 - FORD 3600, an advancement in Farm Mechanisation

launched. Trial production of in-plant manufacturing of engine parts
(Block & Head).

42
1977 - Escorts enters the world of self-developed technology by
setting up its first independent R&D Center. Escorts Scientific
Research Centre marked its beginning at Faridabad by developing its
own Engines for E-27 and E-37. Due to constant technology
absorption, indigenisation level touched 72% for FORD tractors. 2nd
plant at Bangalore for manufacturing piston assemblies was set up.

1979 - Collaboration with JCB Excavators Ltd., UK for manufacture

of excavators.

1980 - Foray into healthcare, Escorts Hospital and Research Center

set up in Faridabad.

1983 - Escorts Tractors Limited (ETL) established a state-of-the-art

research and development centre to spearhead newer breakthroughs in
Farm Mechanisation and to maintain industry leadership. Line
concept introduced for engine block machining. 11,000 ton floating
dry-dock Escorts I launched.

1984 - JV Escorts - Yamaha to manufacture motorcycles

1984 - Signing of agreement with the Japanese bike giant Yamaha to

manufacture motorcycles with Yamaha technology. Collaboration
with Jeumont Schneider of France to manufacture EPABX systems
Collaboration with Dynapac of Sweden to manufacture vibratory road
compactors

1985 - Escorts Tractors Limited (ETL) offered its first Bonus Issue
(1:1).

1988 - Escorts Heart Institute and Research Centre (EHIRC), a world

class cardiac care facility launched in New Delhi.

1989 - Joint Venture with Claas of Germany to manufacture harvester

combines.

1990-91 - First Public Issue in February 1991, over-subscribed four

times. Shares listed on Delhi and Bombay Stock Exchanges.

43
1993 - FORD 3620 tractor launched.

1996 - Disengagement of joint venture collaboration with New

Holland and launch of FARMTRAC Tractor.

1997 - Joint Venture with Carraro of Italy for manufacturing and

marketing of transmission and axles.

Joint Venture with First Pacific Company of Hong Kong - Escotel

Mobile Communications.

1998 - POWERTRAC series of tractors launched.

MoU was signed with Long Manufacturing Company, USA for

setting up a Joint Venture in USA.

1999 - MoU for Joint Venture with a Polish Company POL-MOT was
signed for assembly, manufacturing and marketing of Farm
Machinery.

2004 - Divested Escotel Mobile Telecommunications to Idea Cellular

TS16949 certification for Agri Machinery Group.

2005 – Divested Escorts Heart Institute and Research Centre (EHIRC)

to Fortis Healthcare.

2006 - Divested in Carraro India Ltd.

Set up new manufacturing facility in Rudrapur for manufacture of

new range of railway equipment

44
D Outlook of Escorts Sectors
 The Indian Tractor market is the largest in the world, in terms of sales
volumes. Many factors affect tractor sales including the monsoon,
means of irrigation and reach of water, government support prices for
crops, commodity prices, crop production expenses & credit policy
announced by RBI (most relevant as more than 90% of tractor sales
are on credit).

 Tractor industry has been performing well in the last four years and
the trend is expected to continue in view of good rains in India. It
recorded a growth of 21.2% in volume over last FY & is expected to
perform better with a lot of government focus shifting to agriculture in
the 11th Plan.

 Further the fact that Arable land area remains limited and water tables
are shrinking; again add to the need for more mechanized farming.
However Tractor density as well as the HP input per hectares is low
relative to international standards and the tractor population today is
concentrated; all this shows great potential for the growth in this
industry.

 It is expected that Government agriculture credit estimated at INR

1940 bn would escalate & Banks would continue their focus on
tractor finance.

 The Industry has also registered an increase of 16% in Exports &

volumes have now begun significantly contributing to the Industry's
total production.

 Indian Economy has shown some fantastic growth figures in the last
financial year with Manufacturing, Construction and Infrastructure
sectors taking the lead this scenario would be beneficial for capital
goods sector.

 With infrastructure identified as a key focus area by Government,

development & construction of Roads & Highways, Ports & Airports
would continue, adding up prospects for the Industrial &

45
 Construction Machinery sector with a large number of infrastructure
projects on the anvil.

 Further the overall construction industry is expected to grow at around

15- 20% for the next few years. This should translate into a rise in
demand of the construction and material handling equipments. In
India the auto sector has grown at an impressive 16.82 % over last
year.

 India is the largest 3 wheeler market, 2nd largest 2 wheeler market &
4th largest Commercial Vehicle market. It is poised to be the 3rd
largest automobile market by 2030. The key development of road
infrastructure & the connecting of major cities may further act as a
growth driver.

 Global giants like Toyota, Nissan, and Honda are eyeing on India as
one of their manufacturing bases due to the cost and quality it has to
offer.

 Automobile exports have grown by over 40% in last few years and
even the auto components segment has seen a growth of 26% in
exports.

 The car and commercial vehicle segments have shown good growth in
the last FY. Even the 3 wheeler segment has posted a 28% growth.
However there has been a slight slow down in 2- wheeler segment.

 The two-wheeler industry comprises of motorcycles, scooters and

mopeds. Out of total market of 8.4 million in the year 2006-07,
Motorcycles market at 7.1 million accounted for 84.5% of the total
market. Motorcycle industry has been growing at a CAGR of almost
21.5% since last 7 years, even though the growth in the last year has
been slightly less.

 The Indian Railways (Railways) has seen a fantastic turn around in

the last few years. It has initiated unprecedented expansion plans
targeting 1100 mn tn of freight and INR 8400 mn worth of passenger
traffic. The plans are not only to extend the routes but also number &
types of trains running on them. Expenditure only for expansion of

46
 new routes is estimated at INR 300 bn over 5 years, where as the
outlay for FY 07-08 is INR 310 bn.

 The Railways plan to double its freight transport capacity. This is one
of the main reasons that it has initiated more freight wagons and
enhance current network to run 23T axle trains and mineral routes to
run 25T axle trains. This would be done by adding third and fourth
lines between destinations and installing automatic signaling between
them.

 Railways procure wagons based on RDSO’s designs. However,

wagon manufacturers will now be permitted to supply wagons of their
own designs, with RDSO recommended bogies, coupler, draft and
brake gear. These higher pay load, lower tare weight wagons with
new technology would be costlier compared to old wagons.

 700 Coaches were added to current trains in FY 06-07 and the

railways plan to add 800 more coaches to popular trains this FY. The
number of unreserved coaches is also likely to be increased by 50%
for most trains.

 1250 coaches specifically for handicapped, old and disabled

passengers are planed to be introduced into many trains over the next
two years.

 Newly designed coaches with increase passenger capacity have been

manufactured at Kapurthala Rail factory on a pilot basis and full
fledged manufacture is expected to commence soon.

 The outlay for Metropolitan transport projects is INR 7.2 bn in the

current FY. 150 new suburban trains are planned to be operational in
Mumbai alone with adequate expansions in other Metros too. Budget
for overaged asset replacement has also be increased to INR 55 bn a
162% rise y-o-y.

47
E Quality Policy Of Escorts

“We shall strive to continuously

improve to meet the ever rising
expectations of our customers
at the lowest cost.
Each one of us must fulfill the
need of our customers, both
internal and external, with the
highest degree of commitment,
thereby creating a quality
organization geared to ensure
total customer satisfaction and
the sustained health and
prosperity of our business”

48
 ISSUES AND
CHALLENGES
FACED BY THE
ORGANISATION

49
 ISSUES AND CHALLENGES FACING THE
ORGANIZATION

1. The performance of the tractor industry is directly and closely related

to the performance of the agricultural sector. Even now there is a
heavy dependency on monsoon and a majority of farms are still rain
fed.

2. Apart from the dependency on monsoons irrigation infrastructure is

also suboptimal.

3. Furthermore, there is a huge pressure on the existing agricultural land.

The Net Sown Area across States has either remained constant or
changed slightly and efficient land utilization is approaching the peak
level in all states.

4. Many farmers still lack access to finance and depend on money

lenders. Escorts continues to focus on creating additional mechanisms
for access to cash.

5. All the employees are not allowed to access the internet facility which
hinders the cooperation among various departments.

6. To maintain the goodwill of the company in the market.

7. To strive effective strategies and policies in order to survive in

business environment.

50
REFLECTIONS
ON WHAT
HAS BEEN
LEARNED

51
REFLECTIONS ON WHAT HAS BEEN
LEARNED DURING THE PLACEMENT
EXPERIENCE

1. Experienced the working environment of an organization.

2. Learned to deal with different situations that I might face while

working in an organization.

3. Gained knowledge about different software that makes your work

easier.

4. Gained practical knowledge of what we have studied in theory.

5. Saw the working and functioning of different departments of an

organization.

6. Learned to build and maintain cordial relationship with the staff of

the company.

7. Confidence level is increased and attained professional attitude

towards work.

52
ANALYSIS
&
FINDINGS

53
 ANALYSIS
CAPITAL RESTRUCTURING

PRESENT SITUATION OF ESCORTS LTD

For the year ending 31st March 2009

As per their P&L Account attached

PAT – Profit After Tax-------------------------------------------------Rs89.73 cr.

Tax Rate------------------------------------------------------------------30%

DEBT

Number of Debentures-------------------------------------------------61455

Interest on Debentures (Rate) -----------------------------------------4.25%

Price per Debenture-----------------------------------------------------Rs9900

Full Value of Debentures ----------------------------------------------Rs 60.84 cr

*Amount of Interest on Debentures ----------------------------------Rs 2.58 cr

EQUITY

Number of Equity Shares-----------------------------------------------90,709,496

Price per Share-----------------------------------------------------------Rs 10

Earning per Share--------------------------------------------------------Rs 9.89

54
WORKING NOTES

*Calculation of interest amount

Interest = 4.25% of Rs 60.84 crores
= Rs 2.58 crores

RESTRUCTURING

Restructuring means changing the debt-equity ratio in order to increase the

earning per share or maximize shareholder’s wealth.

For this we will follow the following process:

1 We will buy back the shares from the market. We will buy back
1crore shares of Rs 10 each. This means we will buy back
shares worth Rs 10 crores. Now the number of equity shares of
the company is 80709496 of Rs 10 each i.e. value of share is Rs
80.71cr.

2 Then we will issue new 4.25%debentures worth Rs 10 cr with

same face value i.e. Rs 9900 per debenture.

3 This will reduce the number of shares from 90,709,496 to

80,709496.

4 And it will increase the number of debentures from 61455 to

71555.

WORKING NOTES

Calculation of number of debentures (point 4)

No. of debentures re-issued = 60.84 +10

9900
= 7155

55
 RESTRUCTURED SITUATION

PAT – Profit After Tax ----------------------------------------------89.4325

Tax Rate ---------------------------------------------------------------30%

DEBT

Number of Debentures -------------------------------------------------71555

Interest on Debentures (Rate) -----------------------------------------4.25%

Price per Debenture -----------------------------------------------------Rs 9900

Full Value of Debentures ----------------------------------------------Rs 70.84 cr

Amount of Interest on Debentures -----------------------------------Rs 0.425 cr

EQUITY

Number of Equity Shares-----------------------------------------------80,709,496

Price per Share-----------------------------------------------------------Rs 10

Earning per Share--------------------------------------------------------Rs 11.08

WORKING NOTES:

1 PAT as per present situation = 89.73

(this is before deducting interest on 4.25% debentures Rs 10 cr net of
taxes)

2 Calculation of interest on 4.25% debentures of Rs 10 cr

Interest = 10 cr * 4.25%
= 0.425 cr

56
 Interest Net of Taxes = 0.425 cr * (1- 30%)
= 0.2975 cr

3 Calculation of new PAT

PAT = (89.73-0.2975) cr
= 89.4325 cr

4 Earning per Share = 89.4325

8.07
= Rs 11.08

57
 FINDINGS

Through the analysis we found out:

1. Shareholder’s wealth is increased by maintaining appropriate value of

debt and equity in the capital structure.

2. The increase in interest on 4.25% debentures of Rs 1cr (approx)

increased the EPS by Rs 2(approx).

3. Here we found that when number of equity shares is reduced and the
number of debentures is increased, EPS increases from Rs 9.89 to
Rs11.05

4. It also maintained the Financial Operating Leverage of the company.

58
RECOMMEND
ATIONS

59
 RECOMMENDATIONS

1. The company should choose the value of debt and equity in the capital
structure in such a way so that the shareholder’s wealth is maximized.

2. As a result of increase in the Earning per Share of the company, the

goodwill of the company will also increase.

3. The company should carefully decide the ratio of debt and equity.

60
BIBLIOGRAPH
Y

61
 BIBLIOGRAPHY

Books Referred:

1 Financial Management by I M Pandey

Sites Visited

1 www.escortsgroup.com
2 www.agricoop.nic.in
3 www.outlookmoney.com
4 www.agriculturalequipments.com
5 www.escortsagri.com
6 www.seekandsource.com

62
ANNEXURE

63
 FINANCIAL INFORMATION OF THE COMPANY

1 Last three years: INCOME STATEMENT

Particulars FY06-07 FY07-08 FY08-09 H1(FY09-

10)
Net Sales 2077 1993 2158 1272

Business & Other Income 27 59 32 8

Total Income 2103 2052 2190 1279

Expenditure 1993 1899 1982 1161

EBITDA 111 152 207 118

EBITDA Margin (%) 5% 8% 10% 9%

Depreciation & Amortization 53 51 49 24

EBIT 58 101 158 94

EBIT Margin (%) 3% 5% 7% 7%

Interest & Finance Charges 68.95 55.93 51.54 4

Exceptional item 7 19 -4 3

PBT -17 26 111 87

Tax -11 14 21 22

PAT -6 12 90 65

PAT Margin (%) 1% 4% 5%

64
 2 Last three years: BALANCE SHEET

Particulars FY06-07 FY07-08 FY08-09 H1(FY09-10)

Sources
Share capital 84 91 91 94
Reserves & Surplus 1035 1112 1353 1440
Shareholder Funds 1119 1203 1444 1534
Debt 445 442 264 304
Total 1564 1645 1708 1838
Uses
Net Fixed Assets 867 837 1468 1461
Investments 425 426 236 236
Total Current Assets

Inventory 158 202 199 233

Debtors 380 518 329 280
Cash & Bank Bal. 173 115 165 279
Loan & Advances 215 250 122 161
Other Current Assets 0 10 15 16
Less: Creditors &
Provisions 761 771 859 843
Net Current Assets 166 324 -28 127
Misc. Exp. Written Off 16 11 5

Deferred Tax (Net) 90 48 28 12

Total 1564 1645 1708 1838

65
 3 Last five Years: TURNOVER

2500

2000

1500

1000

500

0
Till March, 2004-05
10 they have2005-06 2007-07 of Rs2007-08
achieved a turnover 1272 crore. 2008-09 FY09-10

66
Last five years: EBITDA & PAT

EBITDA

ChartTitle
250

200

150

100

50

0
2004-05 2005-06 2007-07 2007-08 2008-09

-50
PAT
90
80
70
60
50
40
30
20
10
0
-10 2004-05 2005-06 2007-07 2007-08 2008-09

67
CASE STUDY

68
 CASE STUDY

ESCORTS AMG’S ERP UPGRADE

Introduction

Escorts Limited's, Agri Machinery Group had deployed Avalon's ERP

systems and faced challenges like inability to upgrade, lack of vendor
support, and buggy software. It used tools from the Oracle 11i suite and now
performs its critical operations with better productivity levels.

Escorts Limited's Agri Machinery Group (EL-AMG) manufactures

agricultural machinery, and has four manufacturing plants in Faridabad. It
manufactures three lines of tractors, imports and sells various other farm
equipment, and consequently accounts for around almost two-third of
Escort's revenues (Rs. 900 crore in FY 2002-2003). The use of an ERP thus
plays a significant role in the business operations of this busy manufacturing
company.

EL-AMG had already deployed ERP systems from Avalon, but was plagued
with a number of challenges. The company was unable to draw a future
roadmap and upgrade its technology. And to make matters worse, the ERP
vendor Avalon had shut shop in India. This prompted EL-AMG to look for
an alternative enterprise applications solution for its business. As a solution,
it deployed a number of modules of the Oracle 11i suite of products and can
now make better and more informed decisions, and enjoy a bug-free
software performance.

Business challenges:
Despite using an ERP, the toughest challenge was the inability to draw a
future roadmap by leveraging the latest technologies. This was impeding the
scope for future growth. The company could not leverage the benefits of the
Internet by offering e-commerce and other Web initiatives. Since the Avalon
ERP could not be Web-enabled. To make matters worse, Avalon had shut
shop in India, shutting down chances of upgrades and making use of the
latest technology developments.

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"The Avalon ERP system had outlived itself and had become a dead
product," said Vinay Mehta, IT Head, EL-AMG. The product had
inadequate documentation, which made maintenance very difficult. It was a
headache to incorporate frequent changes in the application.

EL-AMG also had to deal with the problems of software bugs, which could
not be resolved due to lack of proper documentation. The company feels that
the bugs appeared due to over-customization of the product. The central
systems department, which took charge of applications maintenance, spent
most of its time tackling these bugs.

The system was not very user-friendly. The users were not able to run
queries on their own. The responsibility of running the large amounts of
queries and reports was delegated to the central systems department. This
created a huge backlog of work.

EL-AMG also had a certain amount of legacy, which included i2 SCM,

demand planner, factory planner, and warehouse management software for
the spare parts division, HR and payroll applications, after-sales and
warranty systems, and Auto-Matrix Exchange for collaboration with
vendors. The group wanted an end-user-driven system that would empower
the users and allow them to run their own queries, reducing the burden on
the systems department. These made the company decide to implement a
new ERP system, which could take care of the future growth strategies of
the company and provide the needed functionalities.

Choosing the ERP system

In early 2001, EL-AMG began to look for a new ERP system to replace the
existing one. The company chose Oracle among other vendors keeping in
mind the organization's functional and technical requirements. Since the
ERP project was very significant for company, it was named, 'Pragati'.

A lot of time was spent in planning and deciding upon the right software.
And the entire proceedings were conducted in an elaborate and phased
manner to ensure efficiency.

The company laid down three ground rules for vendors willing to
participate.

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They were:

• The vendor had to conduct a three-month Business Process Re-

engineering (BPR) exercise at EI-AMG.
• The ERP vendor would be the technology implementation partner and
handle the sole responsibility of the project.
• The ERP systems had to integrate seamlessly with the company's
legacy software systems.

An important highlight in the selection process was the involvement of end

users. A team of around 70 members was created during evaluation. Almost
80 percent of the members belonged to functional areas. The rest were from
the IT department.

"This was a key learning from the earlier ERP implementation, which was
largely IT-driven. If the selection process is not end-user-driven, you'll have
a hard time convincing users about the benefits. In our new ERP
implementation, we made sure that it was the choice of the end users, so that
they accepted the decision easily," explained Mehta. The Gartner group was
also involved in providing consultancy at each stage.

Each member of the team gave ratings to the vendor. The evaluation was
finally done on the following criteria:

• Functionality
• The ability to integrate third party software
• Type of feedback from existing user base (through visits to other
company's ERP sites)
• Presence in India
• Localization of modules
• Cost
• Time taken to implement.

In March 2002, Oracle was chosen for the applications, an Accenture was
chosen to conduct the BPR exercise.

Implementing 'Pragati'

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The rollout of Oracle's products began in March 2002. EL-AMG is present
in five locations, which comprised four manufacturing plants and an R&D
setup, all within distances of three Km in Faridabad.

The company decided upon the 'big bang' approach to implementation in the
five locations. It went live on Oracle 11i in March 2003. The modules
implemented were Oracle Financials, Oracle Discrete Manufacturing, Oracle
Purchasing, Oracle Order Management, Oracle Workflow and Alerts,
Financial Analyzer (OFA), Purchasing and Manufacturing Intelligence,
Teleservice, iReceivables, and Oracle Treasury.

An important set of exercises during implementation was on data cleansing

and migration. Earlier, different finance divisions used various items, parts,
and vendor codes. With the unification of the different divisions, standard
codes were created for simplification and more efficiency. The data was
taken from legacy system and the coding scheme was revamped.

Reporting and MIS systems had different formats and had to be revamped.
The Bill of Materials (BOM) systems also had to be re-done during
implementation.

The company network

The heart of the network is at the second plant (Plant 2) in Faridabad.
Around 40 servers, some of which are PCs configured as servers, act as a
centralized system. The servers range from NT, Windows 98, Windows
2000 to Linux and Solaris.

A set of four HP severs (HP-Ux 11i) run the core Oracle application
modules. These are connected to a SAN box. The other three plants and the
R&D locations connect to these servers through 2 Mbps leased lines. The
area offices are able to connect to the servers located in Plant 2 through a
VPN provided by HCL Infinet using a PSTN dial-up.

BPR

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"If one goes for an ERP without BPR, there is a chance the company will
miss out on a lot of benefits of BPR," said Mehta. The BPR exercise was
closely aligned with the ERP implementation, ensuring that 'best practices'
were incorporated. Accenture was involved in defining the re-engineered
processes and convincing the end users of the future benefits. Oracle's role
was to map the processes into their products.

The processes involved in re-engineering included finance, procurement,

materials, plant maintenance, and quality assurance.

How the new tools helped

A significant benefit of the new Oracle-based systems was the resolution of
the problems with present in the earlier Avalon ERP. Due to the bugs, the
company could not use its database (Oracle) for generating any meaningful
MIS. So, the MIS for the top management was generated through Excel
sheets instead of being generated directly through the system.

With 11i, the MIS is generated through the system and standard reports are
created. Currently, there are around 250 reports generated for the middle
management and operational people.

The company has also deployed Business Intelligence (BI) tools from Oracle
for the top management. While earlier the focus was on the middle
management and operational personnel, the present focus is on the top
management so that they can perform informed planning and better decision
making activities.

With the help of the new tools, the company was able to shorten the time
taken to close the annual accounts. It was able to close the year end accounts
of FY 2002-2003 within two months, an improvement from four months
time taken earlier. By next year, the company hopes to bring the time taken
down to one week. It is also able to close the accounts each month by the
first week of the next month.

At any time the company is aware of its inventory status. According to R.K.
Jain, Dy. General Manager, AMG (Information Systems), there has been
elimination of a lot of non-value added activities as well, translating into
benefits for the group.

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ROI
The company feels that it's a little early to calculate ROI, and the results are
already visible in the lowered inventory value. According to Mehta, the
system has already brought down the value of inventory by around 30
percent. There has been substantial savings in terms of inventory and
manpower resources.

The future roadmap

Within the next three months, the company will extend its ERP system to its
area offices, which number 25. It will roll out the ERP to 15 nationwide
depots. And will implement product data management systems. It will also
integrate its R&D systems, designing, and product development systems in
the plants in the next few months.

74
SYNOPSIS

75
 SYNOPSIS OF THE PROJECT

ESCORTS LTD “CAPITAL RESTRUCTURIUNG”

Apoorva Bhateja
Mr. Pardeep Kumar
Mr. Ashu Jain

Objectives of the study

1 To understand and observe the practical work in escorts.

2 To seek out the difference between theory and practical

work.

3 To observe the functioning of finance department of escorts.

4 To gain knowledge about different policies of escorts.

5 To develop new skills.

6 To have a direct contact with the employees of Escort to

learn from them.

Findings
Through the analysis we found out:

1. Change in the ratio of debt and equity i.e. in the capital

structure of the company changes the earning per share of
the company.

2. When we reduce the equity and increase the debt, it changes

the amount of interest on debentures.

3. Change in the amount of interest on debentures changes the

76
 profit after tax i.e. PAT.

4. Change in PAT finally changes the earning per share of the

company.

5. Here we found that when number of equity shares is reduced

and the number of debentures is increased, EPS increases
from Rs 9.89 to Rs11.05

RECOMMENDATIONS
1. The company should choose the value of debt and equity in
the capital structure in such a way so that the shareholder’s
wealth is maximized.

2. As a result of increase in the Earning per Share of the

company, the goodwill of the company will also increase.

3. The company should carefully decide the ratio of debt and

equity.

MY PERCEPTION ABOUT INDUSTRY

GUIDE

1. Sir was very cooperative and very helpful to me.

2. He was very king and lenient to me.

3. When needed he was strict also.

4. He guided me very well throughout the project.

5. He taught me the working style of an organization in the

corporate world.

6. I learned how to behave professionally.

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