NEW DELHI: Japanese tractor maker Yanmar is in talks with International Tractor Limited, to raise its stake in the third largest tractor maker in India.
Yanmar owns 12.5% stake in International Tractor and has expressed interest in raising that to 20%, the company’s top official told ETAuto. Yanmar was an early investor in the Indian company having bought the stake in 2005 for Rs 200 crore.
“Our Japanese partner (Yanmar) is willing to buy 8% more in the company. We will see if we can accommodate them,” Deepak Mittal, managing director, ITL, told ETAuto in an exclusive interview.
Blackstone, a leading US private equity investor, is the other investor in the unlisted tractor maker. Blackstone is looking to exit International Tractors Limited (ITL).
“Yes, they want to exit and we have a number of interested investors. However, we are also considering the option of buying back their stake,” Mittal said. Blackstone currently owns 18% stake in the tractor maker it bought for Rs 520 crore.
The Hoshiarpur-based tractor maker has been on a fast track. It started manufacturing tractors in 2005 and last year overtook Escorts as India’s third largest selling tractor brand. Company attributes its impeccable profitability to availability of low-cost manpower in Punjab.
“One of the major reasons is that we don’t pay interest on any debt, since we don’t have loans and the second reason is that we have very competitive labour cost here,” says Mittal.
ITL’s profitability has remained intact as they are also very well diversified, said Abdul Majeed, automotive sector expert at Pricewaterhouse. “They have balanced their businesses between domestic and exports which has helped them even though the domestic market was in distress,” Majeed said. ITL currently gets about 30% of its Rs 5,000 crore revenues through exports.
RIDING ON EXPORTS
Sonalika, the second-largest tractor brand exported from India, is now looking to enter an unlikely market for an Indian manufacturer, China, a market where India’s largest selling tractor maker Mahindras already has a presence. “We have already shipped some tractors for testing purpose and we have got a very good response. Will soon start the supply,” said Mittal, who also heads company’s exports business.
China is one of the world’s largest tractor markets with 4 lakh units of annual sales (30 HP-100 HP). ITL aims to bite into the Chinese market by targeting a 10% market share in the next five years. Mittal said increasing labour costs in China gives him an opportunity to be competitive. ITL already exports tractors to 80 countries and Africa is its biggest market. It has also set up an assembly unit in Algeria with an annual capacity of 5,000 units and looks to increase capacity there. The total installed capacity is 10,000 units. It has signed a joint venture with Cameroon government to assemble tractors.
“We have set up a facility in Cameroon through a joint-venture with the local government. The capacity is expected to be 2,000 tractors per annum,” Mittal revealed.
DOMESTIC MARKET
After commanding the third spot in the domestic market over a year with 12% market share, ITL is aiming to increase that to 15% in the next two years.
It has already invested Rs 600 crore to set up a new modern plant in Hoshiarpur where trial production has started and commercial production will start in the next two-three months. “It is the biggest tractor plant in the world in terms of production capacity. It will produce 500 tractors per day,” said Mittal.
Currently ITL has a capacity of 300 units a day. Once the new plant becomes operational, it will stop production at the old plant which will be converted into a stockyard. The new plant will have modern technology and automation. “With the same manpower we expect to produce more number of vehicles with better quality,” he said. The new plant will roll out one tractor every two-minutes.
Source: Economic Times