Escorts Divests Auto Products To Agri, Railway Engineering; Shares Surge 17%

Aug 12, 2016 06:57 AM EDT | Rubi Valdez

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Delhi-based Escorts Ltd. announced on Thursday it is divesting its automobile products to Badve Engineering Ltd in an all-cash deal of undisclosed amount. The trade marks Escorts' formal exit in the auto industry three years after the merger of its three major holdings.

Escorts managing director Nikhil Nanda said the company wants to focus on agricultural and railway machinery and construction. He added the company has lost interest in investing money in a business that has not brought in decent profit.

According to Live Mint, white collar employees will be transferred to Badve by October 1 and some 120 blue collar workers will be given a voluntary retirement incentive. "I don't want to be emotional about businesses. We have to take a call," Nanda said.

In effect, Escorts' shares rose 17.39 percent on Thursday closing at Rs 305.10 on BSE and gained 27,859.6 points on Sensex.

This is not the first time Escorts divested its businesses. In the past years, the company sold other holdings in healthcare, power transmission, and telecom. The goal is to focus on farm equipment and establish a solid ground on railway construction.

Back in the day, Escorts had a joint venture with Iwata-based Yamaha Motors Co. for selling bikes and eventually with Ford Motor Co. to produce tractors. In 2004, the company sold its telecom stakes to Idea Cellular as well as the shares on Escorts Heart Institute and Research Center to Fortis Healthcare a year after.

Dipankar Ghosh, CEO of Escorts Auto Products and Escorts Railways, said the transfer of the OEM products to Badve will enable them to harness their core areas, Financial Express reported. By the end of Q2 2016, Escorts' net profit surged 33.5 percent largely due to inexpensive farm labor and government support.

Escorts' auto products include motorcycles, scooters, passenger and commercial vehicles, and multi-utility types.

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