Optimism on tractor sales deflating despite normal monsoon1 min read . Updated: 24 Oct 2018, 06:44 AM IST
If the trend of subdued tractor sales continues, the concerns may translate into pain for Mahindra, Escorts and Tractors and Farm Equipments Ltd
Expectations of sustained and strong growth rates in tractor sales following three years of normal rainfall are slowly being deflated. Since June, domestic tractor sales growth has slowed down.
Data from Icra Ltd (see chart above) shows a worrisome 12% year-on-year contraction in September sales to 88,820 units. Still, manufacturers and dealers are hopeful that the fall is due to the delayed onset of the festive season in 2018 (most festivals are in the December quarter this year, whereas they normally fall in the September quarter).
At the same time, the worry of a falling trend in sales persists. After peaking at 35% in June, growth rates tapered off to 20% and 9% in the months of July and August respectively. Although October data have not yet been collated, channel checks suggest that the sluggish trend of earlier months has continued.
Has the tractor sales cycle turned? Although it may be too early to forecast, there have been stumbling blocks in the rural agri-sector that could have spoilt the party. For instance, in spite of normal monsoons, there was uneven spatial distribution of rainfall.
The Icra report explained that regions such as Rajasthan, Maharashtra and Andhra Pradesh that witnessed patchy or below-normal rainfall also saw weaker tractor sales.
Further, in spite of better crop output, farm incomes have not seen a material rise. Some say that even the increase in minimum support prices has not improved farmers’ surplus after the harvest. While there may not be rural distress, the low net surplus at the farmers’ end has led to poor interest in capital expenditure. Obviously, tractor sales are the first to come off, indicating a slowdown after 18 months of buoyancy.
Firms such as Mahindra & Mahindra Ltd the market leader which has over 40% market share, Escorts Ltd and Tractors & Farm Equipments Ltd are holding out, with innovative marketing strategies and new launches. If the trend of subdued tractor sales continues, the concerns may translate into pain for the companies.