MANAGEMENT DISCUSSION AND ANALYSIS

We stand for our core values - Respect for People, Empowerment, Transparency and Collaboration. These values underpin all actions in our drive to achieve growth and profitability not only for our stakeholders but also for society at large.

Industry Overview and Business Performance

1. Escorts Agri Machinery (EAM)

Indian Tractor Industry

Indian Tractor Industry declined by 13.1% in FY15 at 550K units against 633K in FY14. Key reason for decline being unseasonal rain in FY14 and FY15 damaging Rabi crops in both years, lower crop prices, deficient monsoon leading to delayed harvesting and relatively high tractor penetration in northern region. Another reason was lower outlay on MNREGS affecting rural demand and increasing delinquencies affecting credit flow to agri sector especially in states like MP and Maharashtra

Our domestic volumes also went down in line with the industry Our domestic market share stands at 10.5% in year ended FY15. Our export volumes however have more than doubled from 901 tractors last year to 2,214 tractors this year.

In line with our strategy to become market leader in higher HP segments, our tractor volume in 50+ HP grew by 53.6% as compared to last year. Our market share in this segment also grew from 6.6% to 9.7% on full year basis. This segment also grew by 5% in the declining industry.

Opportunities and Threats

Your Company identifies "Global" as the next best opportunity. To facilitate this your Company will focus on International Business in the North America, Europe, Latin America and South Africa and provide the best of technology at an affordable price. Your Company will further expand its current brsence in ASEAN countries, Africa and pockets of Europe. The European markets in focus are Germany, UK, France, Turkey, Italy and Spain.

The improvement in rural liquidity and increase in non-agn component of rural incomes is a strong positive since demand will have lesser sensitivity to monsoon.

Tractor industry is dominated by four major players; entry of MNC players has further intensified competition. Your Company is well poised to counter the same by technology tie up and better product upgrades.

Product Launches

For tapping the growing market segments, your Company aimed to enhance the market penetration via new products.

"ALT - Anti Lift Tractor Series" under the Powertrac brand:

With its consistent focus on Indian agricultural growth, your Company invested significant (over one year) engineering and product development effort to launch the Anti Lift Tractor by Powertrac. This is a path-breaking initiative that recognises the new market order for varied needs, changing tractor usage for specialised applications and use of modern and heavy-duty implements and attachments, thereby offering wider options for agricultural, infrastructure as well as specialised applications for land development activities.

Your Company is the first company in the country catering to operator safety in its own unique way without compromising on machine profitability. The Anti-Lift

Tractor brings freedom from drudgery and life threatening situations for the driver while offering never before value for money for our customers.

Built around the themes of DRIVER SAFETY and OWNER

SAVINGS, ALT is made specifically for commercial haulage costumers also suitable for farm activities

Innovative technology to address vulnerability and pain point caused by front lift nature

ALT 1.0 will come in 37 HP & 41 HP

Certified fuel-efficient engine, haulage-special low-wear rear tyres, 4-coat high-life yellow paint, long life oil brakes and 20% bigger fuel tank

Key measures include shifting the centre of gravity and hitch point forward, unique hub-reduction transmission, increased wheel base, heavy front axle, stiffener bars and plates, custom-designed front bumpers and high-intensity extra front lamps.

Your Company plans to extend the current ALT technology version 1.0 to newer versions 2.0 and 3.0 in the long run to bring even more safe, robust and efficient products for this growing segment.

4WD (4 Wheel Drive) under the Farmtrac brand:

India's 4WD tractor market is at a very nascent stage. Your Company believes that Indian farmers deserve the world's best farm mechanization solutions and the 4x4 technology is a part of that. Developed world has 4x4 tractors ruling 80% of the market and we do not find any reason why India should be any different.

FT 6050 4WD launched in 41 - 50 HP market segment, with enhanced engine power, reliability, augmented productivity standards of FT 6050 4WD versus the performance parameters of other available products has surpassed performance yardsticks versus the competitors.

Additionally for (>50 HP +) market segment, "FT 6055" emerged as a powerful machine. The market response for the newly introduced model is very encouraging for future sales pipeline.

• XP Series

Most fuel efficient tractor in all applications positioned as Mileage Ka Champion "XP37" & "XP41" (Farmtrac brands) have also established their popularity in markets like Punjab, Haryana, Rajasthan, MP, Gujarat etc.

The market response for the newly introduced models under Powertrac & Farmtrac brands has been positive and encouraging for the subsequent quarters. The new models are creating product pull based market demand amongst the perspective buyers. The value additions brought by the new models have been satisfying the customer needs competently from business and technology perspective across all the regions.

Outlook

For the new financial year, domestic industry is expected to remain flat. It is anticipated that in H1FY16, industry volumes will drop; and in H2FY16, industry volumes will pick up. On an overall basis, industry would be flat versus the exit numbers of last FY15.

Weak monsoon is being forecast during the upcoming season by the government agencies. The impact of various factors like rainfall, crop prices, percentage of sown area, the central government's stand towards the land bill and the associated farmer's compensation for the acquired land would shape the chances of improving the industry sentiments in subsequent time frames.

Growing farm consolidation with increasing need for farm power per hectare and increasing substitution of manual and animal labour for various farming operations continue to drive the structural growth for higher HP tractor sales. Increasing finance penetration with more affordable finance rates have enabled a larger number of farmers to own tractors. Concurrently, the economics of tractor operation improved owing to increasing custom hiring for agricultural and other purposes, including transit of farm produce, and transport of people and materials for road construction and other infrastructure projects.

For the agri industry having high peaks, low valleys and seasonality concerns, the best combination of the above factors will augment steady growth in the tractor industry volume and in turn build India's self-reliance for the growing food needs of the rising population demand.

2. Escorts Construction Equipment (ECE)

Overall construction equipment industry seems to be bottoming out, Our Served Industry segments continue to decline since last 4 years. Served Industry volume for the year went down by approx.10%. Our total volumes however went up by 7.6% to 3,007 against 2,793.

In ECE, Backhoe loaders and Cranes have led the growth. Backhoe loaders grew by 20% Y-o-Y in an industry decline of 12%, while the cranes have grown by 8% much faster than the industry growth of 2% on a full year basis (Source: ICEMA). Our backhoe loader DIGMAX II has been well established in the market and we are only player to grow in the industry on both volume and market share basis. On the back of this increased volume, our revenue also increased by 10.5% to Rs. 515.8 crore for the full year.

At Escorts Construction Equipment, your Company is working at product enrichment and lean manufacturing. With this approach in mind we have taken following initiatives:

A. Price increase across segments

B. Reduced our breakeven point by a fair margin mainly through fixed cost rationalisation

C. Increased channel reach and dealerships network strengthened in FY15 to 49 dealers having 130 outlets

D. Other business transformation initiatives

•Rationalised product platform

• Restructuring of sales and marketing team

We will continue to shift towards a better product mix, leaner manufacturing/sales setup and better management of fixed costs.

Industry Challenges

Twenty five players have manufacturing footprint in India and every construction equipment manufacturer is facing challenges in terms of imports from low-cost countries, especially from China, who are increasing their distribution centers and after-sales network in India. China, along with Korea, is expected to offer competition to Indian construction equipment exports to the developed markets. Although Chinese imports have been considered to be a threat, quality awareness among Indian consumers will curb large scale imports.

Outlook

We expect that our served construction equipment industry will continue to face challenges, any recovery is only expected to happen from second half onwards. Earth Moving & Road Construction segments would be the first to come out of the de-growth trend but only post monsoon. In the material handling segment, the industry continues to underperform, would remain debrssed on account of slow growth in mining and construction areas.

With the development in infrastructure, construction equipment market is expected to witness a rapid growth. It is expected that with the implementation of large projects, demand for specialised construction equipment will increase, which includes crawler excavators, wheeled loaders, crawler dozers and compaction equipment.

Going forward, our effort will be to maintain our leadership in cranes and introduce products in high tonnage cranes and increase our BHL market share by increasing our channel reach, ease of financing & spares and service outreach.

3. Escorts Railway Products (ERP)

Your Company is one of the key suppliers to Indian Railways for products including Brake Systems, Couplers, Shock Absorbers, etc. - with a focus on safety, comfort and environment. With this wide product range and in-house R&D capabilities, your Company is well-poised to capture the immense opportunity from the Indian Railways.

The division maintained its good performance and a dominant position in the industry in spite of increased competition and price brssure for existing products. Revenues are up at Rs. 183.7 Cr. as against Rs. 182.5 Cr. last year. The EBIT margins are also up by 105 bps at 9.5% against 8.5% last year. Given the government's focus on revitalising the Indian Railways, we are very excited on the future outlook of this business. Railway sector has a potential to grow at a phenomenal rate in the years ahead. With focus on freight corridors, high capacity rolling stock, last mile rail linkages, high speed trains and port connectivity, the opportunities in this sector are in abundance.

Currently Indian Railways is on its way to become best in world. Your Company now focusing on technology up-gradation to match growth of Indian Railways. Government has cleared a proposal to allow 100 per cent FDI in railway infrastructure, barring operations, via the automatic route. FDI channelled through this route does not require prior government approvals.

4. Escorts Auto Products (EAP)

This year Auto products division took fresh initiatives to develop new customer base in global market; leverage aftermarket network and aggressively reduce costs through VRS and value addition and value engineering. These initiatives will improve the business performance in coming years.

Achieved a revenue of Rs. 103.6 Cr. against Rs. 128.7 Cr. last year on a full year basis. EBIT losses have gone down on a full year basis and also on the quarterly basis. A positive swing of 1360 basis points in Q4 FY15 against corresponding quarter. This is achieved mainly due to cost savings in VRS, margin expansion due to sales portfolio rationalisation and improvement in operations in EAP. Going forward our focus will be to increase the sales in high margin segments and achieve breakeven.

Outlook

Demand is expected to remain weak in the near term, particularly for CVs, given uncertain macro-economic environment. Over the long term, easing macro headwinds in terms of lower interest rates and higher economic growth would be the key drivers for volume growth and profitability.

With more product launches lined up, volume recovery is expected across segments. However, the benefit of the same would differ from player to player depending on their product lifecycle and competitive intensity.

Greater focus on domestic as well as global aftermarkets: Escorts Auto Products increased its reach both in the domestic and global after markets, expanded its merchant exports to Sri Lanka, Bangladesh, Nepal, Egypt and Dubai as well as entered into many of these markets and Indonesia through direct dealers.

Cost reduction efforts: Key fixed/semi variable expenses such as power & fuel cost and administration expenses have reduced YoY despite increase in fuel prices.

Overall Risks & Concerns

Prospects of the Indian tractor and construction industry are highly dependent on government policies. Historically, large number of equipment is sold on credit, despite an increase in the non-performing assets (NPAs) for financial institutions over the last few years, which has led to some tightening of credit norms. There has also been a sharp increase in the cash purchases in last few years, indicating an increase in disposable incomes in the markets. Most of the equipment financing done by banks comes under priority sector lending, a directed-lending mechanism of the Government of India. Despite the macro economic challenges your Company has been able to perform year after year. Had the macroeconomic environment been better we would have performed better.  

MONSOONS

While normal monsoons are critical for the agriculture industry, Indian Met department has brdicted below normal monsoon this year. The tractor sales to some extent run the risk of a demand drop in case of a significant variation in monsoon.

Raw Material Cost

The raw material cost rebrsents the largest expense head of the industry with alloy steel and pig iron (primary components), accounting for 75-80% of the total raw material cost.

Over the past brceding three years, the prices of iron, alloy steel and rubber have been volatile. Any further slight variation will affect the profitability. We have started material cost reduction program and we are confident of reduction of 2-3% visible by FY17.

Fuel Price

With the price of crude oil rising significantly over the past few months, the price of automotive fuel is likely to face upward brssure. Also the last fiscal government has announced for partial deregulation of diesel prices. This has impacted cost of ownership and may have an impact on your Company's product.  

Corporate Governance

Your Company continues to benchmark corporate governance policies. Highly ethical Corporate Governance standard is maintained to ensure honest & professional business practices to protect the reputation of the Company and its stakeholders.

A strong risk management and internal control system form the backbone for robust corporate governance practices.  

Your Company maintains adequate internal control systems, which provide, among other things, reasonable assurance of recording the transactions of its operations in all material respects and of providing protection against significant misuse or loss of Company assets. In FY 2014-15, your Company further strengthened its internal control by outsourcing "Internal Audit" to Grant Thornton. The aim was to develop, ensure and sustain an effective internal-management framework to manage internal controls and risks.

Our IT team department undertook various strategic initiatives for better control and transformation of business. Some of the major initiatives are, The Data Loss Prevention Project (DLP) initiated last year has reached very high level of maturity and Escorts is now able to monitor all the data which is generated and transmitted over the network. Document Management System, under which all the critical documents are digitised and stored into a central digital repository. Hard disk encryption software - Using this software the entire laptop's hard disk is encrypted. In case of any theft or loss of laptop, the data cannot be reused by any unauthorized source as the data cannot be de-encrypted by any means.

Additionally, your Company is expected to focus on enterprise risk management by speeding up the process of implementing risk assessment methodology, developing and implementing risk responses on behalf of management and delivering services that improve organisation risk management and control processes.

Investor Relations

Your Company has a dedicated investor relations desk, which service the interest of investors, through regular contact and timely communication. Your Company maintains an active engagement with the investor community, through ongoing investor management meetings with shareholders and investors globally. During the year, your Company has actively participated in a number of Domestic and International Investor Meets. Your Company also periodically conducted Analysts' Meets and plant visits to communicate details of performance, important developments and exchange information.

Your Company's website (www.escortsgroup.com ) contains a separate dedicated section 'Investor Information' where all shareholders' information is available under one roof. Your

Company's Annual Report is also available in a user-friendly and downloadable form. Further, for any query, you can write in to us at investorrelation@escorts.co.in and we will get back to you.

Corporate Social Responsibility

As part of the community development, we indulge ourselves in multiple health related activities, such as check-up camps, women empowerment, blood donations, among others in Haryana. CSR at Escorts portrays the deep symbiotic relationship that the Group enjoys with the communities it is engaged with. As a responsible corporate citizen, we try to contribute to social and environmental causes on regular basis.

Our CSR Mission of empowering communities and creating opportunities for the underprivileged in areas of education, training and health, to ensure sustainable and inclusive growth, which is both environment - friendly and socially - uplifting.

Below are the details of different CSR activities undertaken during FY 2014-15:

Rahat for Jammu & Kashmir

Donated 1200 Warm Clothes to deprived communities

"Celebrated Women's Day" in slums area and distributed stationery items such as note books, pens, pencils, erasers, sharpeners, diaries and chocolates.

"Celebrated World Disability Day" with Disabled Students from the Vision Institute, Faridabad

"Celebrated Diwali and hosted dinner in Old Age Home"

Organised Clean India Drive by Escorts Employees and did cleaning campaigns in communities near by our plants

Employee Training and Development

Your Company manages 9,200 employees across all levels. Your Company has organized various in - house and external training workshops for workmen. There were approx. 269 training programmes and 7,695 Training Mandays; during last 12 months, the same initiative is being undertaken for the development of our employees in all our business verticals.

Capital Expenditure

Your Company has carefully planned Capital Expenditure for medium term with the primary focus on developing design, productivity improvement and cost reduction.

In addition, investments are also planned for modernization of the existing manufacturing facilities and improve the flexibility across all the plants giving a competitive advantage to your company to introducing more products in the coming years.

Cost Savings:

Your Company has continuously focused on streamlining operations and cost rationalisation during 2014-15 including materials, manufacturing and other overheads. All the employees right from shop floor to corporate office are involved in this initiative, wherein each team has targets to achieve in cost savings.

We have taken initiatives on building lean supplier base to benchmark ourselves against the best. Positive results will be visible in this financial year. Our efforts towards reducing fixed costs have kept pace in the year gone by and tangible results will be visible in years ahead.

Financial performance with respect to operational performance

The financial statements have been brpared in compliance with the requirements of the Companies Act, 2013 and Generally Accepted Accounting Principles (GAAP) in India. The Company has provided segment reporting on a consolidated basis as per standard AS 17 on segment reporting. This information appears along with the consolidated accounts.

Operational Performance

The Company's Revenue at Rs. 3,985.8 crores in year ended March 2015 against Rs. 4,262.7 crores in year ended March 2014. The tractors volume at 59,779 in year ended March 2015 down by 13.3% against 68,963 tractors in year ended March 2014. Construction volumes up by 7.7% at 3,007 in year ended March 2015 against 2,793 in ended March 2014.

Earnings before Interest, Taxes, Debrciation, and Amortisation (EBITDA) at Rs. 161.4 crores in year ended March 2015 as against Rs. 274.0 crores in year ended March 2014.

Profit Before Tax (PBT) at Rs. 68.3 crores in year ended March 2015 against Rs. 209.9 crores in year ended March 2014 and

Profit After Tax (PAT) at Rs. 74.7 crores in year ended March 2015 against Rs. 179.3 crores in year ended March 2014.

Segment Performance:

The Escorts Agri Machinery division revenues down by 8.8% at Rs. 3,210.8 crores in year ended March 2015 against Rs. 3,521.6 crores in year ended March 2014. The EBIT for the division stood at Rs. 229.3 crores in year ended March 2015 against Rs. 352.3 crores in year ended March 2014. Down due to slowdown in industry.

The Escorts Auto Product division revenues stood at Rs. 103.6 crores in year ended March 2015 against Rs. 128.7 crores in year ended March 2014. The EBIT stood at Rs. (23.7) crores against Rs. (25.1) crores last year.

The Escorts Railway Products division revenue at Rs. 183.7 crores in year ended March 2015 against Rs. 182.5 crores in year  ended March 2014. The EBIT stood at Rs 17.5 crores against

Rs. 15.5 crores last year.

The Escorts Construction Equipment division revenue up by 10.5% to Rs. 515.8 crores ended March 2015 against Rs. 466.8 crore in year ended March 2014. The EBIT stood at Rs. (24.8) crores against Rs. (25.7) crores last year.

Note: The 'forward-looking statements' part ofthe Management Discussion & Analysis on economic indicators is based on our best estimate of the current environment. This may be subject to change based on external macro-economic factors out of control, including but not limited to raw material availability and prices, cyclical demand and pricing in the Company's principal markets, changes in government regulations, tax and economic policies.

On behalf of the Board

Sd/- RAJAN NANDA

Chairman & Managing Director

Date: May 28, 2015

Place: Faridabad