Good monsoon puts tractor sales on the road to recovery

Tractor sales in the June quarter up 14.7% at 163,365 units; manufacturers revise sales growth projections for 2016-17 from earlier 10% to 15-17%


Graphic: Sarvesh Sharma/Mint
Graphic: Sarvesh Sharma/Mint

Mumbai: After two lean years, tractor makers are looking forward to a bounty. A good monsoon and a pick-up in infrastructure and construction, among other factors, could drive demand to the highest in two years, said analysts and industry officials.

Most tractor makers have revised their sales growth projections for 2016-17 from the earlier 10% to 15-17%. Sales are expected to rise most in the south, followed by eastern and northern states owing to lower tractor penetration in these regions and government-led schemes to support agriculture.

Overall domestic sales in the June quarter were 163,365 units, 14.7% more than a year ago, said market leader Mahindra and Mahindra Ltd (M&M).

According to Rajesh Jejurikar, president and chief executive (farm equipment and two-wheeler business) at M&M, the optimism stems from the good progress and distribution of monsoon and an improved crop yield.

“With monsoon, it’s not just the quantum of rainfall, but the timing and the spread that also matters,” he said.

Pent-up demand after two years of rural distress has also aided growth, said Nikhil Nanda, joint managing director at Faridabad-based tractor maker Escorts Ltd. Nanda expects the forthcoming festive season to add more heft to the recovery and make up for the shortfall seen in the first half of the year.

In a conference call with analysts on 9 August, Pawan Goenka, executive director and group president (auto and farm sector) at M&M, said the company is looking at industry sales growth of 13%, 14%, 15% and 16% in the four quarters of fiscal year 2017, respectively. “The last quarter was one of the best that we have seen when it comes to tractor industry. Of course, we had expected it to be good, but it was perhaps even better than what we had thought it might be,” he said.

M&M’s sales during the June quarter rose to 71,649 units, 21% more than a year ago. A let-up in overall tractor demand coupled with new model launches drove the market share of the Mumbai-based company to a record 43.8% during the June quarter.

Escorts’s sales in the three-month period rose 10% from a year ago to 16,363 units.

Ravi Menon, chief executive (agri machinery group) at Escorts, said the company now expects the tractor market to advance in the high teens and his company to outperform the same.

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An email sent to TAFE Ltd, India's second largest tractor maker by sales, remained unanswered.

A.S. Mittal, vice-chairman at International Tractors Ltd, the third largest, expects the market to grow by as much as 20% at the end of the current fiscal year.

The 15-17% growth expected in the current year will be the highest in two years, said Binaifer F. Jehani, director (industry research) at Crisil Research.

A good monsoon has helped kharif crops and in turn boosted tractor demand, while an improvement in construction and rural infrastructure projects has also has aided growth, Jehani said.

Close to a third of tractors sold in the country are deployed for commercial applications including haulage, construction and infrastructure development work. The rural infra projects augur well for tractor sales as it helps the farmers utilize tractors optimally and has been one of the reasons for the spike in demand for higher horsepower tractors, said Pradeep Lokhande, founder of Rural Relations, a rural marketing firm.

In 2014-15, tractor sales in India fell 13% from a year ago to 551,463 units, as poor monsoon led to rural distress and sapped demand. Sales fell in 2015-16 as well, declining 11% to 493,764 units.

State-run weather forecaster India Meteorological Department (IMD) said on 13 September that 86% of the country had normal to excess rainfall during the 1 June to 13 September period, while the rest of the country got deficient rain—5% below average since 1 June; with 759.9mm rain vs the normal of 802mm.

The June-to-September monsoon has been normal so far, the IMD said.

The north-eastern region received the maximum rainfall (1,111.9mm), while the south peninsular region received the least (545.9mm).

The sowing of kharif (monsoon) crops this year has shown a rise compared with last year.

Data with the agriculture ministry shows that 105.4 million hectares have been planted under different kharif crops so far, an increase of 4.16% from the area sown by this time last year.

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Farm incomes could rise by double digits, after three years of decline, in FY17, supported by an increase in net sown area, higher yield and supportive prices, said a JM Financial Institutional Securities Ltd report.

Due to a lower penetration rate, tractor sales in southern India, including Telangana and Andhra Pradesh, will rise 35-37% as compared to 18-20% in western India, 11% in eastern and 4% in northern India, said Crisil’s Jehani.

The industry has seen robust sales in the states—Andhra Pradesh, Tamil Nadu, Telangana and West Bengal. The major reason for the decline in the northern region, said M&M’s Jejurikar, is the delay in the monsoon, which has impacted the sowing of kharif crops.

“Now that the rains have caught up across the country, we should see a good growth in all states,” he said.

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