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Business News/ Companies / News/  Sonalika Tractors in talks to set up a plant in China
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Sonalika Tractors in talks to set up a plant in China

Sonalika International head Gaurav Saxena says in talks with a Chinese tractor maker to form a joint venture for a plant it is putting up in Shandong province

Sonalika International head Gaurav Saxena says work on the China plant has already started and it is expected to commence production in the first half of 2017. Photo: BloombergPremium
Sonalika International head Gaurav Saxena says work on the China plant has already started and it is expected to commence production in the first half of 2017. Photo: Bloomberg

Mumbai: International Tractors Ltd, the makers of Sonalika brand of farm equipment and India’s third largest tractor maker by volume, is in talks with a Chinese tractor maker to form a joint venture for a plant it is putting up in Shandong province, a top company official said.

Work on the China unit has already started and it is expected to commence production in the first half of calendar year 2017, said Gaurav Saxena, head of international tractor business at Sonalika International. By 2020, the unit will have a capacity to make 5,000 tractors every year.

The Hoshiarpur, Punjab-based firm has tapped into the exports market in an attempt to survive the cyclical nature of the tractor industry in the domestic market. In the first eight months of the current fiscal, Sonalika International shipped 8,121 units abroad, up 20% from a year ago, said Saxena.

The incremental volumes, he claimed, had come on the back of an “encouraging response" from niche markets in Europe and Asia. It has also got a boost from markets in Africa, where the governments are encouraging mechanisation.

ALSO READ | Blackstone Group to sell stake in Sonalika tractors for Rs1,700 crore

The maker of Sonalika brand tractors will be the second tractor company after Mahindra and Mahindra Ltd to start manufacturing in China. In 2004, Mahindra China Tractor Co. Ltd, a joint venture with Jiangling Motor Co Group, opened shop. Five years later, it formed another joint venture with Jiangsu Yueda Yancheng Tractor Manufacturing Co. Ltd.

Sonalika International currently has assembly plants in Brazil, Algeria and Cameroon and exports semi-knocked-down, completely-knocked-down and fully-built tractors to close to 80 countries. It’s also in talks with its distributor in Iran to set up an assembly plant, said Saxena.

Overseas sales account for a third of volumes for the company and on the back of new models and entry into newer markets, it expects exports to continue to expand at a brisk pace, year on year, for the next three years, Saxena added.

ALSO READ | Sonalika tractors parent to file for Rs2,000 crore IPO by early October

Sonalika International’s Hoshiarpur plant has a capacity to produce approximately 200,000 tractors a year. M&M is the market leader with about 38% share while Sonalika holds about 12%.

Credit rating agency ICRA expects a growth of 9-10% in tractor sales (domestic sales and exports) in FY2017. “The tractor industry witnessed a spike in domestic volumes since April 2016 with farm sentiments uplifted by reasonable rabi crop production, healthy rainfall as well as government support programmes," a December 2016 report from ICRA said.

“While the improved farm sentiments could have driven a healthy double-digit growth in volumes during the current fiscal, the recent demonetization by the government of India would adversely impact sales volumes over the near term," the report added.

The first eight months of the current financial year have seen a significant improvement in the tractor industry in comparison to the previous two years, said Raman Mittal, executive director at Sonalika in a separate a statement.

In another significant development, Blackstone Group is set to sell its 17.75% stake in the firm to Japan’s Yanmar Co. Ltd for Rs1,700 crore, Mint reported on 23 December citing people aware of the plan. Blackstone, which had invested about $100 million (Rs520 crore then) for a 12.5% stake in the tractor maker in 2012, subsequently raised its stake to 17.75%. Yanmar already owns 12.5% in Sonalika International.

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Published: 27 Dec 2016, 01:57 AM IST
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